Annual Report 2018-19 Good Health Can't Wait CIN:L85195TG1984PLC004507 Road No

DR. REDDY’S LABORATORIES LIMITED Annual Report 2018-19 Good Health Can't Wait CIN:L85195TG1984PLC004507 Road No. Banjara 3, Hills,8-2-337, Hyderabad 500 India 034, www.drreddys.com DR. REDDY’S LABORATORIES LIMITED “The future belongs, not to those who merely seek opportunity, but to CONTENTS those who create it. Let CORPORATE OVERVIEW STATUTORY REPORTS FINANCIAL STATEMENTS us have the courage to Letter from the Chairman and 02 Business responsibility report 22 Standalone fi nancial statements 103 do things diff erently.” Co-Chairman Management discussion and 34 (Ind AS) Our Businesses 04 analysis Consolidated fi nancial statements 175 Key Performance Indicators 06 Five years at a glance and key 46 (Ind AS) Building a Winning Future 07 fi nancial ratios Extract of audited IFRS consolidated 261 fi nancial statements Board of directors 16 Corporate governance 48 Glossary 264 DR. K ANJI REDDY Management council 20 Additional shareholders’ 68 information Notice of the 35th annual 265 Board’s report 80 general meeting Company Overview Statutory Reports Financial Statements Annual Report 2018-19

Building a winning future

OUR PROMISES Our fi ve promises clarify what we do, what we off er and the commitments we make to our stakeholders. Our patients trust our medicines. We focus our energies on renewing this trust every day. As we keep the interests of our patients at the center of all that we do, our promises drive us to reach higher levels of excellence.

Building a winning future 1 Dr. Reddy’s Laboratories Limited

LETTER FROM THE CHAIRMAN AND CO-CHAIRMAN

Dear Shareholder, Though one needs to be circumspect in relationships, new product portfolio making defi nitive statements in an annual and ramping up of base businesses in report, it is fair to say that there are clear key geographies. indicators of your company’s operational and fi nancial turnaround. You will recall that in our letter to you last year, we had written: “From the beginning On the revenue side, your company of FY2018 there has been a totally focused witnessed impressive growth in branded drive on eliminating needless layers generics markets, especially in India, and unnecessary costs.” With changing Russia, China, Brazil and CIS countries. dynamics of the generics markets, we Other than improving the base business believe that cost competitiveness will across these markets, we launched several continue to be a key driver. Hence, we aim new products and scaled up in new to continue creating a leaner and more geographies like Brazil and Colombia. effi cient organization. K SATISH REDDY Chairman However, strong pricing pressures In FY 2019, our cost optimization continued unabated in the US — your initiatives enabled us to improve company’s key generics market. This was profi tability. Multi-year initiatives are now true for all generic companies, and in place to drive cost and procurement Dr. Reddy’s was no exception. Thankfully, effi ciencies; to optimize R&D spends and strong revenue growth in branded generics productivity; and to improve manpower outweighed the negative pull in the US. throughput by delayering and eliminating Consequently, your company’s global needless overlaps. generics revenue increased by 8% over the previous year. Your company has also focused on constructing a leaner business model so In response to the changing conditions as to create profi table growth for each of in this key market, we are building a its businesses. As a part of the strategy, diff erentiated pipeline for the US. FY2019 saw the company selling its antibiotic formulations manufacturing In FY2019 alone, we fi led 20 new facility in Bristol , US; its API manufacturing Abbreviated New Drug Applications business unit at Jeedimetla, Hyderabad; (ANDAs) with the USFDA. As on 31 March and the rights to distribute and market the G V PRASAD 2019, your company had 110 generic specialty derma brands portfolio. Co-Chairman, Managing Director and fi lings pending approval from the USFDA CEO — comprising 107 ANDAs and three We can also share some good news New Drug Applications (NDAs). Of the regarding the USFDA warning letters that 107 ANDAs, 60 are Para IV applications, had aff ected three of your company’s of which we believe 34 have ‘First-to- manufacturing facilities: API manufacturing File’ status. at Miryalaguda (Telangana) and Srikakulam (Andhra Pradesh), and the oncology The company's pharmaceutical services formulations facility at Duvvada, near and active ingredient (PSAI) business has Visakhapatnam (Andhra Pradesh). seen a turnaround. In FY2019, revenues from PSAI grew by 10% over FY2018. In the Regarding the API plant at Miryalaguda, the course of the year, your company fi led 82 USFDA issued an Establishment Inspection Drug Master Files (DMFs) across the globe, Report (EIR) in June 2017, indicating including nine in the US. The strategy of successful closure of its audit of this facility. building sustainable and growing PSAI This facility was reinspected in January revenues involves deeper customer 2019, for which the USFDA issued an EIR

2 Company Overview Statutory Reports Financial Statements Annual Report 2018-19

in May, 2019. Similarly, in February 2019, India will continue to be important. We the USFDA issued an EIR for the oncology have seen a 12% growth in revenues in formulations facility at Duvvada and has FY2019 and improved our market ranking determined the inspection classiﬁ cation by three places. of this facility as Voluntary Action Initiated (VAI). In March 2019, we responded to the We shall propel further growth in our PSAI follow-up questions from USFDA regarding business. These moves should reduce the API facility in Srikakulam. Based on the our dependence on the US and also subsequent discussion with USFDA, we help us generate sustained growth and Revenues expect a reinspection will be conducted for proﬁ tability to counter-balance volatility of ₹ 154 billion 8% the site. the unbranded generics markets.

We remain focused on improving quality Gross profi t WHAT IS OUR VIEW OF THE NEAR FUTURE? across all aspects of our operations, with ₹ 83 billion 9% initiatives for continuous improvement, We believe that pricing pressures will reducing manual interventions through continue to aff ect all players in generics in digitization and shop fl oor training Gross profi t margin the US. programs to constantly upgrade the culture 54.2% 0.5% of quality. We intend to continue this Overcoming this necessitates a robust journey and meet the highest regulatory pipeline of complex formulations with standards across markets. EBITDA limited competition — a pipeline that allows your company to introduce several ₹ 34.2 billion 42% Given your company’s signifi cantly value-added products each year, and thus improved performance in FY2019, make up for price erosions on the earlier the success in improving operational Operating profi t launched products. effi ciencies and our determination to drive ₹ 20.9 billion 75% growth, we are reasonably optimistic of the As touched upon earlier in this letter, we prospects for FY2020. have such a pipeline — of 110 generic Profi t before tax (PBT) fi lings awaiting approval from the USFDA. Our thanks to the management team, We have to leverage this and ensure that ₹ 22.4 billion 56% all employees and partners for coming we succeed in delivering these products, together to deliver better results. And our molecule by molecule, to the US on the thanks to you for your support. Profi t after tax (PAT) due dates. As we wrote last year, "We have to do this without fail, and with best-in- ₹ 18.8 billion 92% With best regards, class cost. That is the way out." Diluted earning per share (EPS) Given the challenges in the US market, we will continue our eff orts to diversify ₹ 113.09 92 % our market presence. We will leverage our global portfolio of products in markets outside the US to drive growth. We will K SATISH REDDY G V PRASAD These are commendable results also refocus some of our R&D resources Chairman Co-Chairman, — the more so after our lower to service the high potential branded Managing Director and than expected performance in generics markets such as China, Russia CEO FY2018 and FY2017 and other Emerging Markets. This is an important element of our geographical diversifi cation and new market entry strategy — to lead with high value products and go-to-market partnerships.

Building a winning future 3 Dr. Reddy’s Laboratories Limited

OUR BUSINESSES

GLOBAL PHARMACEUTICAL PROPRIETARY GENERICS (GG) SERVICES AND ACTIVE PRODUCTS & OTHERS INGREDIENTS (PSAI)

REVENUE REVENUE REVENUE

D 123 billion 8% D 24 billion 10% D 7 billion 13%

Geography ACTIVE PHARMACEUTICALS PROPRIETARY PRODUCTS North America India INGREDIENTS Our Proprietary Products business focuses ₹ 60 billion ₹ 26.2 billion 12% We are one of the world’s largest on developing diff erentiated formulations manufacturers of Active Pharmaceuticals that present signifi cantly enhanced Emerging Markets Ingredients (APIs) and partner with several benefi ts in terms of effi cacy, ease of use, leading generic formulator companies and the resolution of unmet and under- ₹ 28.9 billion 28% in bringing their molecules fi rst to the met patient needs. The aim is to improve market. Our focus on innovation-led the patient’s holistic experience with our GLOBAL GENERICS aff ordability gives our customers access to medicines, so as to strengthen compliance Global generics is our biggest business the most complex active ingredients, while with the therapeutic regimen and ensure driver. We off er more than 350 high-quality maintaining a consistent global quality positive outcomes. generic drugs, keeping costs reasonable standard. Besides, our APIs development by leveraging our integrated operations. eff orts enable our own generics business Our expertise in active ingredients, product to be cost competitive and get to development skills, a keen understanding market faster. More than 350 of regulations and intellectual property high-quality rights, as well as our streamlined supply CUSTOM PHARMACEUTICAL generic drugs chain, makes us leaders in this segment. SERVICES We have one of the largest custom BIOLOGICS pharmaceutical services businesses One of the Our biosimilars, generic equivalents of in India. We off er end-to-end product world’s largest the innovator’s biologics, off er aff ordable development and manufacturing services manufacturers yet equally eff ective alternatives. Our and solutions to innovator companies. Diff erentiated of APIs product development capabilities and Further, our rich and extensive knowledge formulations commercial reach have made us global repository of various types of formulations that present leaders in this therapeutic area. We have helps shorten time to market and support enhanced fi ve products in the market and an industry- lifecycle management. benefi ts leading pipeline spanning oncology and autoimmune diseases.

4 Company Overview Statutory Reports Financial Statements Annual Report 2018-19

GLOBAL PRESENCE

Nationalities 40 Countries 38

Sales & Marketing Ofﬁ ces Manufacturing Facilities Research & Development Centres Headquarters

FY2019

Revenues Generic fi lings New products D 154 billion 20 ANDA fi lings 140 As on 31 March 2019, 110 generic NAG EBITDA ﬁ lings are pending for approval 24 34.2 billion (107 ANDAs and three NDAs). D Of these, 107 ANDAs, 60 are Para IV Europe ﬁ lings of which we believe 34 to have 35 Profi t after tax ‘First-to-File’ status. Emerging Markets D 18.8 billion 66 DMF fi lings India Diluted EPS Nine DMFs fi led in the 15 D 113.09 US.

Building a winning future 5 Dr. Reddy’s Laboratories Limited

KEY PERFORMANCE INDICATORS

Revenue PBT ROCE (` million) (` million) (%) FY2019 153,851 FY2019 22,443FY2019 14.7

FY2018 142,028 FY2018 14,341 FY2018 8.2

FY2017 140,809 FY2017 14,653 FY2017 10.3

FY2016 154,708 FY2016 27,140 FY2016 22.4

FY2015 148,189 FY2015 28,163 FY2015 26.1

Gross Proﬁ t PAT EPS (Diluted) (` million) (` million) (`) FY2019 83,430 FY2019 18,795 FY2019 113.1

FY2018 76,304 FY2018 9,806 FY2018 59.0

FY2017 78,356 FY2017 12,039 FY2017 72.1

FY2016 92,281 FY2016 20,013 FY2016 117.0

FY2015 85,403 FY2015 22,179 FY2015 129.7

EBITDA Net Worth Net Debt to (` million) (` million) Equity Ratio FY2019 34,189FY2019 140,197 FY2019 0.09

FY2018 24,081FY2018 126,460 FY2018 0.24

FY2017 25,495FY2017 124,044 FY2017 0.25

FY2016 36,252FY2016 128,336 FY2016 (0.05)

FY2015 36,16 8 FY2015111,302 FY2015 0.03

6 BUILDING A WINNING FUTURE

We are proud of what we do. We are committed to helping our partners on their mission to bring medicines to patients faster and to patients on their journey to good health by accelerating access to aff ordable and innovative medicines.

Good health also starts within. We took some meaningful steps this year to optimize our global cost structures and strengthen our foundations. We focused on creating a leaner and sustainable model across our businesses to prepare ourselves for the future. With a focus on portfolio, patient centricity, people and quality, we realigned our strategy towards six chosen segments to drive future growth. We put in place a strong team for each of the strategic segments. Together, these steps will add substantially to our competitive muscle and make us a globally sustainable organization and go a long way in building a winning future. Dr. Reddy’s Laboratories Limited

Addressing unmet patient needs

8 Company Overview Statutory Reports Financial Statements Annual Report 2018-19

Hervycta® – accelerating access to innovative and aff ordable medicines

Cancer is one of the leading causes of and its treatment. This leads to denial fi rst, death globally. Breast cancer is the most followed by a reluctance to accept, and then a common cancer amongst Indian women1. tendency to postpone, which aff ects treatment Although signifi cant strides have been taken in outcomes eventually. developing anti-cancer medication, a majority of cancer patients cannot aff ord its treatment The Hervycta® website was launched to provide costs and do not have access to the most comprehensive information on the symptoms, advanced drugs. risk factors, diagnosis, treatment and answers to questions that patients and caregivers The biologic drug, trastuzumab, is one of frequently have. The website uses infographics the few approved and eff ective treatment for clarity and is easy to navigate. options for HER2+ breast cancer, but the cost of treatment is high and drug accessibility Hervycta® Pluspack, a unique user centric is low in India. Our Biologics team took up packaging was launched to facilitate proper this challenge of bringing the much-needed storage, drug protection and communicate treatment within the reach of Indian breast proper handling instructions for the drug. cancer patients. We launched the trastuzumab It’s a compact carton divided into two biosimilar, Hervycta®, in 2018. compartments with an inbuilt tray to store the drug and the diluent vials separately and safely. The story, however, didn’t end at developing The compartments are easy to tear off , making the drug. We also wanted to understand and it convenient to retain and store any unused address little known unmet needs which can reconstituted drug solution safely. make a huge diff erence in treatment outcomes. Before launching Hervycta®, we engaged with As Hervycta® continues to enable thousands of multiple stakeholders to gain insights into their women fi ght HER2+ breast cancer, we remain beliefs towards the disease, so we could take committed to using science to address unmet cancer care beyond the drug. needs of patients.

We realized that a key reason for the low rate of diagnosis and high mortality in breast cancer is the lack of awareness and availability of authentic information about the disease Hervycta®H Pluspack was launched to facilitate proper storage, drug protectiond and communicatec proper handlingh instructions for the drug. 1. Cancer Statistics, Retrieved from http://cancerindia.org.inorg in

HER2+ Human epidermal growth factor receptor 2

Building a winning future 9 Dr. Reddy’s Laboratories Limited

Bringing expensive medicines within reach

10 Company Overview Statutory Reports Financial Statements Annual Report 2018-19

Accelerating access to generics to treat opioid addiction

Opioid addiction can disrupt normal, healthy sales of our buprenorphine and naloxone functioning of the brain. This brain disruption generic in the Trial Court of US District Court can be long-lasting, and can lead to potentially for the District of New Jersey. Pending a harmful behavior, irrespective of age, sex, full hearing and decision on the injunction or socio-economic status. If left untreated, it application, the said Court issued a Temporary may cause severe consequences. According Restraining Order (TRO), eff ective the day to the US Centers for Disease Control and after commencement of shipping in the US Prevention, the total national economic burden market. The TRO halted further sales and of prescription opioid misuse alone is nearly shipments, but not manufacturing. On 13 July US$ 80 billion a year. Doctors can medically 2018, the Trial Court converted the TRO into treat opioid addiction with buprenorphine and a preliminary injunction on commercialization naloxone. activities. We then immediately appealed the preliminary injunction decision to the Court of In June 2018, we received FDA's approval Appeals for the Federal Circuit, which agreed to market a generic version of Suboxone® to expedite the appeal. (buprenorphine and naloxone) sublingual fi lm. This approval came after the conclusion On 20 November 2018, the Court of of litigation in the US District Court for Appeals vacated the preliminary injunction. the District of Delaware, where the Court Subsequently, Indivior fi led a further petition concluded that the patents asserted against for rehearing which was denied. This required us covering Suboxone® sublingual fi lm would another three months to navigate through the not be infringed by our generic sublingual fi lm appeals process. Finally, we resumed shipping product. and sales of the product on 20 February 2019.

On 14 June 2018, we became the fi rst This long and successful fi ght for the company to launch a generic buprenorphine right to launch this product has been an and naloxone sublingual fi lm product in the US important milestone for us. It strengthens our and it demonstrated our ability to successfully commitment to provide aff ordable treatment manufacture complex generics. Following this for opioid addiction and other medical launch, Indivior PLC (“Indivior”), the owner conditions plaguing patients and communities of the Suboxone® NDA product, fi led for an worldwide. injunction to ban further manufacturing and

A generic version of Suboxone® was relaunched by us on 20 February, 2019 to ﬁ ght opioid addiction

Building a winning future 11 Dr. Reddy’s Laboratories Limited

Working with partners to help them succeed

12 Company Overview Statutory Reports Financial Statements Annual Report 2018-19

XCEED – enhancing engagement with customers and prospects

Our partners are on a mission to bring We ﬁ rst launched the easy-to-navigate API medicines to patients faster. Accessing real and CPS websites, which were designed to time information about products and their help customers understand our business and business with us is key to improving their off erings better. The websites also opened a operational effi ciency. new channel for lead generation.

To help customers make better business Our customer service platform, XCEED was decision, our Pharmaceutical Services and launched in April 2019, which was a huge step Active Ingredients (PSAI) division embarked up towards improving customer experience on a digital transformation initiative with and facilitating collaboration. Customers across primary objectives – to create an exemplary the globe are now able to manage the whole service experience for our customers, increase business process in real time – from ordering engagement, acquire new customers and samples to submitting and tracking orders – generate leads. providing convenience and transparency.

We started by carrying out an end-to-end The platform also allows customers to closely evaluation of a customer’s journey with us interact with our interdisciplinary support team. – from enquiring and ordering to payment. Customer service and XCEED as a platform We identiﬁ ed the areas that needed would be one of the biggest diff erentiators improvement in internal processes, designed in PSAI’s aspiration to be numero uno. We new and more effi cient process ﬂ ows, and will continue to build on the foundation of set targets for service turnaround time our websites and customer service platform based on past performance, aspirations, and to help our customers further improve their customer expectations. operational effi ciency and deeply engage with prospects.

We are excited about and inintriguedtr with the steps tatakenk by Dr. Reddy’s to ttransformransf their B2B business to eemulatem the convenience anand transparency of a B2C business. ProcurementProc Head, a leading European Pharmaceutical Company

Building a winning future 13 Dr. Reddy’s Laboratories Limited

Helping patients manage disease better

14 Company Overview Statutory Reports Financial Statements Annual Report 2018-19

Briviact® – Ensuring epilepsy drug availability in India

There are more than 12 million epilepsy UCB, the Belgium based biopharmaceutical patients in India. Although they lead a fairly company, whom we have been partnering normal life, the threat of recurrent seizures with since 2015, developed the Brivaracetam imposes a lot of restrictions on their daily (branded as Briviact®) drug with anticonvulsant activities – from being dissuaded from properties. In phase 3 trial, patients treated driving a vehicle to participating in sports. At with Brivaracetam as an adjunctive medication times, seizures leave them with a sense of had better seizure control than the placebo embarrassment, especially in the public place. control group. Moreover, Briviact® has potential to provide additional value for patients - both Epilepsy, being a chronic condition, can only today and in future. be managed using anti-epileptic drugs (AEDs). Poorly controlled seizures can be detrimental We collaborated with UCB to market Briviact® and have signiﬁ cant impact on daily activities in India and launched the drug in July 2018. for people aff ected. As many as one third of Since the launch, we have seen excellent people with epilepsy are currently uncontrolled responses with 500 healthcare practitioners on their existing medicines. These patients and 5000 patients beneﬁ ting from the therapy can require multiple drugs which increases pill so far. We still hear heartwarming stories of burden and chances of adverse events. the impact Briviact® has had on patients’ lives, almost every day. We are always looking for opportunities to bring medicines within the reach of patients. Here was another opportunity.

Patients treated with Brivaracetam as an adjunctive medication had better seizure control than the placebo control group.

Building a winning future 15 Dr. Reddy’s Laboratories Limited

BOARD OF DIRECTORS

K SATISH REDDY G V PRASAD ANUPAM PURI Chairman Co-Chairman, Managing Director Independent Director and Chief Executive Offi cer

567 567 2 3

BHARAT N DOSHI DR. BRUCE L A CARTER KALPANA MORPARIA Independent Director Independent Director Independent Director

1256 3 4 3 5

OUR BOARD LEVEL COMMITTEES Committee membership 1. Audit committee 4. Risk management committee 2. Nomination, governance and 5. Stakeholders' relationship committee Committee chairmanship compensation committee 6. Corporate social responsibility committee 3. Science, technology and operations 7. Banking and authorisations committee committee

16 Company Overview Statutory Reports Financial Statements Annual Report 2018-19

DR. OMKAR GOSWAMI PRASAD R MENON SRIDAR IYENGAR Independent Director Independent Director Independent Director

1 4 23 1 4

LEO PURI SHIKHA SHARMA ALLAN OBERMAN Independent Director Independent Director Independent Director

23 14 34

Building a winning future 17 Dr. Reddy’s Laboratories Limited

Board of Directors (Continued)

K SATISH REDDY ANUPAM PURI DR. BRUCE L A CARTER Chairman Independent Director Independent Director Mr. K Satish Reddy joined the company Mr. Anupam Puri was associated with Dr. Bruce L A Carter was the Chairman in 1993 as Executive Director and since McKinsey & Company before joining us. of the Board and Chief Executive Offi cer then has held positions of increasing He spearheaded the development of of ZymoGenetics Inc., USA. He has also responsibility as Managing Director in 1997 McKinsey’s India practice, oversaw the served as the Corporate Executive Vice and Vice-Chairman & Managing Director Asian and Latin American offi ces, and was President and Chief Scientifi c Offi cer for in 2013. Mr. Reddy led the company’s an elected member of the Board. He played Novo Nordisk A/S. Dr. Carter held various transition from a uni-focused manufacturer a variety of other leadership roles during positions of increasing responsibility of Active Pharmaceutical Ingredients (APIs) his 30-year career there. Before joining at G.D. Searle & Co., Limited. He was a to a company that moved up the value McKinsey and Company, he was Advisor for lecturer at Trinity College, University of chain with a diverse product portfolio of Industrial Development to the President of Dublin, from 1975 to 1982. Dr. Carter holds fi nished dosage formulations. He oversaw Algeria, and consultant to General Electric’s directorship in Enanta Pharmaceutical the expansion and the establishment of Center for Advanced Studies. He is currently Inc., Mirati Therapeutics Inc., Accelerator a strong footprint for Dr. Reddy’s fi nished a management consultant. Mr. Puri holds Corporation and TB Alliance, all in the US dosage products in Russia, CIS countries directorship in Mahindra & Mahindra and our wholly-owned subsidiary, Aurigene and other emerging markets. Keeping Limited, Tech Mahindra Limited, and the Discovery Technologies Limited, in India. true to the legacy of the founder of the company’s wholly-owned subsidiary, Dr. Carter received a B.Sc. with Honors in company, Dr. K Anji Reddy, Mr. K Satish Dr. Reddy’s Laboratories Inc., USA. Mr. Puri Botany from the University of Nottingham, Reddy drives the company’s Corporate holds an M.Phil. in Economics from Nuffi eld England and a Ph.D. in Microbiology Social Responsibility initiatives. Mr. Reddy College, Oxford University, UK, an M.A. from Queen Elizabeth College, London holds a degree in Chemical Engineering in Economics from Balliol College, Oxford University, UK. from Osmania University, Hyderabad and University, UK and a B.A. in Economics from a Masters in Medicinal Chemistry from Delhi University, India. KALPANA MORPARIA Purdue University, USA. Independent Director BHARAT N DOSHI Ms. Kalpana Morparia is the Chair person G V PRASAD Independent Director of J.P. Morgan, South and Southeast Asia. Co-Chairman, Managing Director and Mr. Bharat N Doshi is a former Ms. Morparia is a member of J.P. Morgan’s Chief Executive Offi cer Executive Director and Group CFO of Asia Pacifi c Management Committee. Prior Mr. G V Prasad leads the core team Mahindra & Mahindra Limited. He was also to joining J.P. Morgan India, Ms. Morparia at Dr. Reddy’s that has contributed the Chairman of Mahindra & Mahindra served as Vice Chair on the Boards of signifi cantly to its transformation from a Financial Services Limited since April 2008, ICICI Group Companies and was the Joint mid-sized domestic operation into a global and he stepped down from this position Managing Director of ICICI Group from pharmaceutical major. He is the architect on his nomination as Director on the 2001 to 2007. She has been recognized by of Dr. Reddy’s successful Global Generics Central Board of Directors of the Reserve several national and international media for and Active Pharmaceutical Ingredient Bank of India in March 2016. He holds her role as one of the leading women (API) strategies, as well as the company’s directorship in Mahindra Intertrade Limited, professionals. Ms. Morparia holds foray into biosimilars and diff erentiated Mahindra Holdings Limited, the Mahindra directorship in Hindustan Unilever formulations. Mr. Prasad is engaged with United World College of India, Mahindra Limited and J.P. Morgan Services India strengthening the company’s research Foundation (USA), Mahindra Foundation Private Limited in India and Philip Morris and development capabilities, supporting (UK) and Godrej Consumer Products International Inc. in USA. She is also progressive people practices and Limited. He is also one of the trustees a member of the Governing Board of building a holistic culture of operational of KC Mahindra Education Trust. He also Bharti Foundation. A graduate in science excellence. He was listed in the prestigious serves on the Advisory Board of Excellence and law from Mumbai University, India. ‘Medicine Maker 2018 Power List’ of Enablers, an organization committed Ms. Morparia has served on several most inspirational professionals shaping to promoting corporate governance in committees constituted by the Government the future of drug development, and one India. Mr. Doshi is a Fellow Member of the of India. of ‘India’s Greatest 50 CEOs Ever’ by Institute of Chartered Accountants of India Outlook magazine in 2017. Mr. Prasad and the Institute of Company Secretaries holds a degree in Chemical Engineering of India and holds a Master 's degree in from the Illinois Institute of Technology, Law from Mumbai University, India. He is Chicago, USA and a Masters in Industrial an alumnus of Harvard Business School Administration from Purdue University, (PMD) and Fellow of the Salzburg Seminar USA. on ‘Asian Economies: Regional and Global Relationships’.

18 Company Overview Statutory Reports Financial Statements Annual Report 2018-19

DR. OMKAR GOSWAMI SRIDAR IYENGAR SHIKHA SHARMA Independent Director Independent Director Independent Director Dr. Omkar Goswami is the Founder and Mr. Sridar Iyengar is an independent Ms. Shikha Sharma was the Managing Chairman of CERG Advisory Private mentor investor in early stage start-ups Director & CEO of Axis Bank, India’s third Limited, a corporate advisory and and companies. Earlier, he was a senior largest private sector bank from June 2009 economic research and consulting partner with KPMG in the US and UK and upto December 2018. As a leader adept at company. He was the Chief Economist also served as the Chairman & CEO of managing change, she led the Bank on a at the Confederation of Indian Industry KPMG’s operations in India. For more transformation journey from being primarily for six years. He also served as editor of than 35 years, he has worked with a large a corporate lender to a bank with a strong Business India, Associate Professor at the number of companies, advising them on retail deposit franchise and a balanced Indian Statistical Institute, Delhi, and as an strategy and other issues. Mr. Iyengar lending book. Ms. Sharma has more than advisor to the Ministry of Finance. holds directorship in Mahindra Holidays three decades of experience in the fi nancial Dr. Goswami holds directorship in CG and Resorts India Limited, ICICI Venture sector, having begun her career with ICICI Power and Industrial Solutions Limited, Funds Management Company Limited, Bank Limited in 1980. During her tenure Ambuja Cements Limited, Godrej Cleartrip Private Limited in India; AverQ Inc. with the ICICI Group, she was instrumental Consumer Products Limited, Bajaj in the US; Cleartrip Inc. in Cayman Islands; in setting up ICICI Securities. As Managing Finance Limited, Hindustan Construction Holiday Club Resorts OY in Finland and our Director & CEO of ICICI Prudential Life Company Limited, Bajaj Auto Limited wholly-owned subsidiary, Dr. Reddy’s Insurance Company Limited, she led the and CERG Advisory Private Limited. He Laboratories S.A., in Switzerland. He company to become the No. 1 private sector holds a Bachelor of Economics degree holds a Bachelor of Commerce (Hons.) life insurance company in India. Ms. Sharma from Calcutta University, India and did degree from Calcutta University, India and holds directorships in Ambuja Cements his Masters in Economics from the Delhi is a Fellow of the Institute of Chartered Limited and Tata Global Beverages Limited. School of Economics, India and his D. Phil. Accountants in England and Wales. Ms. Sharma has an MBA from the Indian (Ph. D.) from Oxford University, UK. Institute of Management, Ahmedabad, LEO PURI India, B.A. (Hons.) in Economics and PGD in PRASAD R MENON Independent Director Software Technology from National Centre Independent Director for Software Technology (NCST), Mumbai, Mr. Leo Puri was the Managing Director India. Mr. Prasad R Menon is a former of UTI Asset Management Co. Limited Managing Director of Tata Chemicals from August 2013 to August 2018. In his ALLAN OBERMAN Limited and Tata Power Company career of more than 30 years, Mr. Puri Independent Director Limited. Prior to joining Tata, he was has previously worked as Director with Director Technical of Nagarjuna McKinsey & Company and as Managing Mr. Allan Oberman served as the Chief Fertilisers and Chemicals Limited. He Director with Warburg Pincus. Mr. Puri has Executive Offi cer of Concordia International has over 40 years of diverse experience worked in the UK, USA and Asia. Since Corp. from November 2016 until May 2018. in some of the premier multinational 1994, he has primarily worked in India. In his career of more than 35 years he also and Indian companies in the chemical At McKinsey, he has advised leading served as CEO of Sagent Pharmaceuticals and power industry. Mr. Menon holds fi nancial institutions, conglomerates and Inc., and President and CEO of Teva directorship in Singapore Tourism Board investment institutions in strategy and Americas Generics, a subsidiary of Teva and Sanmar Group Advisory Board. operational issues. He has contributed Pharmaceutical Industries Limited. Prior to Mr. Menon holds a chemical engineering to the development of knowledge and that, Mr. Oberman served as President of degree from the Indian Institute of public policy through advice to regulators Teva EMIA, where from 2010 to 2012 he Technology (IIT), Kharagpur, India. and government offi cials. At Warburg was responsible for Eastern Europe, Middle Pincus, he was responsible for leading and East, Israel and Africa. From 2008 to 2010, managing investments across industries he served as the Chief Operating Offi cer in India. He also contributed to fi nancial of the Teva International Group, and from services investments in the international 2000 to 2008, he served as the President portfolio as a member of the global and CEO of Teva Canada (formerly partnership. Mr. Puri holds directorship in Novopharm Limited). From 1996 to 2000, Hindustan Unilever Limited, Northern Arc Mr. Oberman was the President of Best Capital Limited and Indiaideas.com Limited Foods Canada Inc. He holds directorship (Billdesk). Mr. Puri has a Master’s degree in Planet Shrimp Inc. and Jay Pharma Inc., in P.P.E. from Oxford University, UK and a both in Canada. He has an MBA from Master’s degree in Law from Cambridge the Schulich School of Business, York University, UK. University, Toronto and a BA from Western University, London.

Building a winning future 19 Dr. Reddy’s Laboratories Limited

MANAGEMENT COUNCIL

20 Company Overview Statutory Reports Financial Statements Annual Report 2018-19

K SATISH REDDY MARC KIKUCHI Chairman Chief Executive Offi cer, North America Generics Age 51 | B.Tech., M.S. (Medicinal Chemistry) Age 50 | MBA, BA (Molecular and Cell Biology) Joined the company on 18 January 1993 Joined the company on 1 February 2019

G V PRASAD M V RAMANA Co-Chairman, Managing Director and CEO Chief Executive Offi cer, Branded Markets (India and Emerging Markets) Age 58 | B.E. (Chem. Eng.), M.S. (Indl. Admn.) Joined the company on 30 June 1990 Age 51 | MBA Joined the company on 15 October 1992 ARCHANA BHASKAR Chief Human Resource Offi cer SANJAY SHARMA Global Head of Manufacturing Age 52 | MBA Joined the company on 15 June 2017 Age 51 | B. Tech. (Chem. Eng.) Joined the company on 1 August 2017 DR. ANIL NAMBOODIRIPAD Global Head of Proprietary Products SAUMEN CHAKRABORTY Chief Financial Offi cer and Global Head of ITBPE, Age 53 | Ph.D. Physiology and Molecular Biophysics Legal & Compliance and FMCRE Joined the company on 17 September 2007 Age 58 | B.Sc.(H), MBA Joined the company on 2 July 2001 DR. RAYMOND DE VR É Global Head of Biologics SAURI GUDLAVALLETI Age 51 | Ph.D. in Applied Physics Global Head of Integrated Product Development Joined the company on 30 July 2012 Organization (IPDO) Age 41 | B. Tech. (Mech. Eng.), Masters in Mechanics DEEPAK SAPRA and MBA Global Head of PSAI Joined the company on 16 March 2015 Age 44 | B.E., PGDM, MBA Joined the company on 23 January 2003 YUGANDHAR PUVVALA Global Head of Supply Chain EREZ ISRAELI Age 48 | MBA Chief Operating Offi cer Joined the company on 21 February 2001 Age 52 | MBA Joined the company on 2 April 2018

GANADHISH KAMAT Global Head of Quality Age 57 | M.Pharm., Diploma in Business Management Joined the company on 18 April 2016

Building a winning future 21 Dr. Reddy’s Laboratories Limited

BUSINESS RESPONSIBILITY REPORT

We remain cognizant of the needs of patients while creating healthy ecosystems and strong communities.

22 Company Overview Statutory Reports Financial Statements Annual Report 2018-19

Disclosures on the nine principles as charted by the Ministry of Corporate Aff airs in the ‘National Voluntary Guidelines (NVGs) on Social, Environmental and Economic Responsibilities of Business’

ETHICS, PRODUCT EMPLOYEE TRANSPARENCY & LIFE CYCLE WELLBEING ACCOUNTABILITY SUSTAINABILITY Businesses should Businesses should provide Businesses should conduct and govern goods and services that promote the themselves with ethics, are safe and contribute to wellbeing of all transparency and sustainability throughout employees. accountability. their lifecycle.

POLICY EQUITABLE CUSTOMER ADVOCACY DEVELOPMENT VALUE Businesses, when engaged Businesses should Businesses should in inﬂ uencing public and support inclusive engage with and regulatory policy, should growth and equitable provide value to do so in a responsible development. their customers manner. and consumers in a responsible manner.

Building a winning future 23 Dr. Reddy’s Laboratories Limited

SECTION A MARKETS SERVED BY THE COMPANY - DO ANY OTHER ENTITY/ENTITIES (E.G. GENERAL INFORMATION LOCAL/STATE/NATIONAL/ SUPPLIERS, DISTRIBUTORS ETC.) THAT ABOUT THE COMPANY INTERNATIONAL THE COMPANY DOES BUSINESS WITH, CORPORATE IDENTITY NUMBER (CIN) Our major markets include United States PARTICIPATE IN THE BR INITIATIVES OF THE COMPANY of America (USA), India, Russia, CIS regions OF THE COMPANY? IF YES, THEN L85195TG1984PLC004507 and Europe. INDICATE THE PERCENTAGE OF SUCH ENTITY/ENTITIES? NAME OF THE COMPANY We also reach out to patients in Yes. We have a code of conduct for Dr. Reddy’s Laboratories Limited various other markets such as partners, which we expect them to Canada, South Africa, Australia, Brazil, follow. For more details, please refer REGISTERED ADDRESS China and others. to: https://www.drreddys.com/media/ 8-2-337, Road No. 3, Banjara Hills, 720559/supplier-code-of-conduct.pdf Hyderabad 500 034, Telangana, India SECTION B FINANCIAL DETAILS OF THE SECTION D WEBSITE COMPANY (AS ON 31 MARCH 2019) BR INFORMATION www.drreddys.com PAID-UP CAPITAL (`) (A) Details of the director responsible ` 830 million for implementation of the BR E-MAIL ID policy/policies [email protected] TOTAL TURNOVER FROM OPERATIONS Mr. K Satish Reddy (STANDALONE) (`) Chairman FINANCIAL YEAR REPORTED ` 106,255 million DIN: 00129701 April 2018 to March 2019 TOTAL PROFIT AFTER TAX (`) (B) Details of the BR Head SECTOR(S) THAT THE COMPANY IS ` 12,773 million Mr. Thakur Pherwani ENGAGED IN (INDUSTRIAL ACTIVITY Head, Environment, Health, Safety, CODE-WISE) TOTAL SPENDING ON CORPORATE Sustainability and Operations Excellence Pharmaceuticals (210) SOCIAL RESPONSIBILITY (CSR) Tel: +91-40-4900-2339 AS PERCENTAGE OF PROFIT AFTER E-mail ID: [email protected] LIST THREE KEY PRODUCTS/ TAX (%) DIN: Not applicable SERVICES THAT THE COMPANY 2.05% MANUFACTURES/PROVIDES (C) Indicate the frequency with which Omeprazole, OTC Habitrol and LIST OF ACTIVITIES IN WHICH the board of directors, committee of Liposomal Doxorubicin EXPENDITURE ABOVE HAS BEEN the board or CEO meets to assess INCURRED the BR performance of the company TOTAL NUMBER OF LOCATIONS Refer to Principle 8 on page no. 31 3–6 months WHERE BUSINESS ACTIVITY IS UNDERTAKEN BY THE COMPANY (D) Does the company publish a BR or Our sales and marketing operations span SECTION C a Sustainability Report? What is the over 38 countries. We also serve API OTHER DETAILS hyperlink for viewing this report? customers globally. DOES THE COMPANY HAVE ANY How frequently it is published? SUBSIDIARY COMPANY/COMPANIES? Yes, the company publishes both (A) Number of international locations Yes a BR and a sustainability report. (Provide details of major 5): The sustainability report can be viewed We have manufacturing facilities DO THE SUBSIDIARY COMPANY/ at: www.drreddys.com/our-citizenship/ in Louisiana (USA), Mirﬁ eld (UK), COMPANIES PARTICIPATE IN THE sustainability.aspx Mexico and two development centres BR INITIATIVES OF THE PARENT in Cambridge (UK) and Leiden COMPANY? IF YES, THEN INDICATE The BR can be viewed as part (The Netherlands). THE NUMBER OF SUCH SUBSIDIARY of the annual report. They are Refer page no. 79 COMPANY(S). published annually. Our subsidiary companies are closely (B) Number of national locations integrated with our corporate BR initiatives. We have 17 manufacturing units, four R&D units, two technology development centres in India. Refer page no. 78

24 Company Overview Statutory Reports Financial Statements Annual Report 2018-19 ning https://www.drreddys.com/ media/636787/dr-reddys-she- Yes Yes policy-board.pdf implementation policies and their review primarily lies with the respective business/function head. placed before the board for consideration and approval. All other policies are approved by CEO/MD. We abide by all laws of the We land and are a signatory to the 10 principles of UN Global Compact. We into account industry take best practices and global in deﬁ benchmarks our policies. P9 CUSTOMER VALUE

https://www.drreddys.com/ media/527942/corporate- Yes The responsibility for the Yes policies are Statutory Yes Yes social-responsibility- policy_2017.pdf Yes, the policy Yes, is in line with national standards. P8 EQUITABLE DEVELOPMENT

Not applicable P7 POLICY ADVOCACY

https://www.drreddys.com/ media/636787/dr-reddys-she- Yes Yes policy-board.pdf Yes Yes, the policy is in Yes, line with national standards. Yes P6 ENVIRONMENT

www.drreddys.com/investors/ governance/code-of-business- conduct-and-ethics-cobe.aspx The responsibility for the implementation policies and their review primarily lies with the respective business/function head. Yes, the policy Yes, conforms to national standards pertinent to human rights. in India Policies are approved by CHRO and international policies by CEO/ The MC MD. and relevant are stakeholders consulted. P5 HUMAN RIGHTS All the standing orders are co-signed by the recognized union. all the statutory requirements. All the contracts and standing orders include relevant aspects of human rights. ning our https://www.drreddys.com/ media/636787/dr-reddys-she- Yes policy-board.pdf The responsibility for the implementation policies and their review primarily lies with the respective business/function head. We abide by all laws of the We land and are a signatory to the 10 principles of UN Global Compact. We into account industry take best practices and global in deﬁ benchmarks policies. policies are Statutory placed before the board for consideration and approval. All other policies are approved by CEO/MD. P4 STAKEHOLDER ENGAGEMENT

NA Yes erent markets markets erent All policy changes are discussed in HR leadership team meeting. The MC and relevant stakeholders are consulted before taking it for approval. Policies in India are Policies approved by CHRO and international policies by CEO/MD. The management council (MC) and relevant stakeholders are consulted. Yes, we conform to Yes, the required labor laws in each country. Apart from that, we continuously benchmark our policies with competition in diff and review them as needed. P3 EMPLOYEE WELL-BEING ning https://www.drreddys.com/ media/636787/dr-reddys-she- Yes policy-board.pdf implementation policies and their review primarily lies with the respective business/function head. Statutory policies are Statutory placed before the board for consideration and approval. All other policies are approved by CEO/MD. our policies. We abide by all laws We of the land and are a signatory to the 10 principles of the UN take Global Compact. We into account industry best practices and global in deﬁ benchmarks P2 PRODUCT LIFE CYCLE SUSTAINABILITY

www.drreddys.com/investors/ governance/code-of-business- Yes The responsibility for the Yes Yes Yes Yes Yes comply with We conduct-and-ethics-cobe.aspx Yes, it has been Yes, approved by the board and/ or appropriately authorized. We have adopted We a code of business conduct and ethics (COBE) which conforms to national and international standards. This applies to all the directors and employees across the group. P1 ETHICS, TRANSPARENCY AND ACCOUNTABILITY cial ed PRINCIPLE-WISE (AS PER NVGS) BR POLICY/POLICIES PER NVGS) (AS PRINCIPLE-WISE for the policy to be viewed online? company have a speciﬁ committee of the board/ director/offi to oversee the implementation of the policy? been approved by the board? If yes, has it been signed by MD/ owner/CEO/ appropriate board director? conform to any national/ international If yes, standards? specify? been formulated in consultation with the relevant stakeholders? PRINCIPLE-WISE PRINCIPLE-WISE PER NVGS) (AS BR POLICY/ POLICIES policy/policies for- 6 Indicate the link 5 Does the 4 Has the policy 3 Does the policy 2 Has the policy SL. NO. TABLE 1 TABLE 1 Do you have a

Building a winning future 25 Dr. Reddy’s Laboratories Limited nine principles broadly through the following policies: Code of Business Conduct and Ethics (COBE), SHE policy and principles, quality policy, purchase policy and HR policies. These policies are regularly reviewed by various internal agencies, and external including regulatory also agencies. We proactively follow public advocacy through various forums. ombudsperson policy to address all concerns related to company-level policies. to sign an undertaking, at stating that least annually, they have read the Code of Business Conduct and Ethics (COBE) and comply with the principles of New employees are code. required to sign a similar undertaking at the time all of joining. Additionally, our policies with respect to the nine principles are available on the website. company’s P9 CUSTOMER VALUE Yes Employees are required P8 EQUITABLE DEVELOPMENT

Not applicable P7 POLICY ADVOCACY P6 ENVIRONMENT Yes Yes No comply with the We Yes Yes NA also have a dedicated We Yes Yes P5 HUMAN RIGHTS Yes Yes Yes Yes Yes We comply with the nine We principles broadly through the following policies: Code of Business Conduct and Ethics (COBE), SHE policy and principles, quality purchase policy and policy, HR policies. These policies are regularly reviewed by various internal and agencies, including external regulatory agencies. We also proactively follow public advocacy through various forums. We also have a dedicated We ombudsperson policy to address all concerns related to company-level policies. Employees are required to sign an undertaking, at stating that least annually, they have read the Code of Business Conduct and Ethics (COBE) and comply with the principles of New employees are code. required to sign a similar undertaking at the time of all our joining. Additionally, policies with respect to the nine principles are available website. on the company’s P4 STAKEHOLDER ENGAGEMENT All policies are audited by the internal audit also have team. We auditors who external review HR policies/ processes. Policy grievances Policy are handled by the respective business also HR partners. We have a common email- wherein employees ID, can drop an email with their feedback. intranet where all policies are published along with FAQs. Apart from that, we have employee communications sent out on any changes in policies. Yes, all policies have Yes, been communicated to stakeholders. P3 EMPLOYEE WELL-BEING nine principles broadly through the following policies: Code of Business Conduct and Ethics (COBE), SHE policy and principles, quality purchase policy policy, and HR policies. These policies are regularly reviewed by various internal and external agencies, including regulatory agencies. We also proactively follow public advocacy through various forums. ombudsperson policy to address all concerns related to company-level policies. to sign an undertaking, at stating that least annually, they have read the Code of Business Conduct and Ethics (COBE) and comply with the principles of the code. New employees are required to sign a similar undertaking at the time all of joining. Additionally, our policies with respect to the nine principles are available on the website. company’s P2 PRODUCT LIFE CYCLE SUSTAINABILITY Yes comply with the We Yes YesYes we have an Yes, also have a dedicated We Yes Employees are required P1 ETHICS, TRANSPARENCY AND ACCOUNTABILITY PRINCIPLE-WISE (AS PER NVGS) BR POLICY/POLICIES PER NVGS) (AS PRINCIPLE-WISE carried out independent audit/evaluation of the working of this policy by an internal or agency? external company have in- house structure to implement the policy/policies? company have a grievance redressal mechanism related to the policy/policies to address stakeholders’ grievances related to the policy/policies? PRINCIPLE-WISE PRINCIPLE-WISE PER NVGS) (AS BR POLICY/ POLICIES been formally communicated to all relevant internal and external stakeholders? 10 Has the company 8 Does the 9 Does the SL. NO. TABLE 1 TABLE 7 Has the policy

26 Company Overview Statutory Reports Financial Statements Annual Report 2018-19

SECTION E PRINCIPLE-WISE PERFORMANCE PRINICIPLE 1 ETHICS, TRANSPARENCY AND ACCOUNTABILITY 1. Does the policy relating to ethics, bribery and corruption cover only the company? Does it extend to the group/joint ventures/suppliers/ contractors/ NGOs/others? Yes. The policy relating to ethics, bribery and corruption extends beyond our employees, both whole-time and independent directors and covers our wholly owned subsidiaries. While contracts with our suppliers, contractors and business partners include adherence to our principles concerning ethics, there is a separate code of conduct required to be adhered to by our suppliers and ii. Reduction during usage by are huge drawbacks of batch service providers. consumers (energy, water) has been processing. In addition, an achieved since the previous year. increasing pressure on quality 2. How many stakeholder complaints (i) ROXADUSTAT and costs has all led the pharma have been received in the past We have continued to apply industry towards gradually fi nancial year and what percentage and embed 12 principles embracing the concept of was satisfactorily resolved by the of green chemistry in our continuous manufacturing. management? research and development Continuous manufacturing We have a hotline for whistle-blowers pursuits. We identifi ed a off ers many advantages such and receiving concerns. The concerns synthesis of ROXADUSTAT as shorter processing times, received are dealt with according to in which a regioselective increased safety, increased our Ombudsperson policy. During the opening of anhydride ring effi ciency, less WIP material, year ended 31 March 2019, we have and Pd metal free C-C bond lesser manual handling and received and resolved 176 complaints formation aiming to develop smaller footprint. It is also after due investigation. an innovative, greener and amenable to Real Time Release cost eff ective route [relatively testing approaches. PRINCIPLE 2 less Raw Material Cost (RMC)] to meet the business needs Our API team has embarked PRODUCTS LIFE CYCLE without compromising on the upon this journey & signifi cant SUSTAINABILITY environmental considerations. progress is done. 1. List up to 3 of your products In this endeavour, we have or services whose design An existing batch process of high reduced the Process Mass has incorporated social or volume API (Atorvastatin Calcium) Intensity (PMI) substantially close environmental concerns, risks and/ consisting of multiple chemical to 90% of innovator's route. or opportunities. conversions and unit operations i. ROXADUSTAT is being redeveloped to generate (ii) Continuous Manufacturing – API-1 ii. Continuous Manufacturing – API-1 a completely integrated system The pharmaceutical industry (Atorvastatin Calcium) starting from raw materials to has so far relied on batch iii. Continuous Manufacturing – API-2 dried API via fl ow processing. processes for manufacturing (Flozins Intermediate) In current process, there are drug substance as well as drug three chemical conversions followed products. However, longer 2. For each such product, provide by unit operations of crystallization, campaign times, labour intensive the following details in respect fi ltration, drying & powder nature of batch manufacturing of resource use (energy, water, processing. There is isolation and (which has a signifi cant raw material etc.) per unit of quality testing of compounds at impact on production cost), product (optional): each of these steps. and batch rejections/batch i. Reduction during sourcing/ to batch variations in the A lean continuous manufacturing production/distribution achieved product quality (which leads to process is developed using fl ow since the previous year throughout wastage/regulatory concerns) chemistry principles wherein: the value chain.

Building a winning future 27 Dr. Reddy’s Laboratories Limited

safety, promote diversity, quality Air vs Sea shipment:- We have a education, environment, process process in place to monitor the simplifi cation, management systems overall air vs sea shipments to including bribery and corruption. maximize the export shipments Number of organic solvents by sea, and yearly plans are is reduced and overall Dedicated resources are involved laid-down (market specifi c targets solvent consumption/kg. of in sustainable sourcing activities are assigned) for the fi nished goods API is reduced by ~50% including capacity building, developing movement from air to sea and to long-term supplier partnerships, eff ectively reduce carbon footprint vendor development and performance in our supply chain. In the reporting management, and sharing best period, we have avoided 42,165 practices among all strategic business tons of carbon emission with this partners. We have a dedicated team program in place. Isolations at all intermittent steps for supply risk mitigation program to are eliminated. develop alternate vendors, wherever 4. Has the company taken any steps Flow approach has enabled to single vendors are considered critical to procure goods and services from explore design space that would for business continuity. local & small producers, including be impractical (even impossible) communities surrounding their in batch mode. This has led to We have undertaken several place of work? If yes, what steps signifi cant reduction in reaction simplifi cation projects to improve our have been taken to improve their time from hours to minutes for all logistics in recent years. Few such capacity and capability of local and chemical conversions. initiatives are: small vendors? Number of organic solvents is Indigenization of supplies: Yes, we have procedures in place reduced and overall solvent Localization has led to lowering of to procure goods and services from consumption/kg. of API is procurement costs and improvement local producers. reduced by ~50%. in overall quality of the products, Overall cycle time of Presently ~70% of our procurements and when the materials are manufacturing API is reduced are from domestic producers and ~30% delivered with shorter lead-times, from days to few hours. from international producers. with complete compliance control This process has been successfully (especially temperature sensitive Dedicated resources are assigned tested at pilot scale. Benefi ts of RMS) and lower logistics costs. the job of improving capacity and this approach, when implemented This substitution generates a range capabilities of local producers. at commercial level, are smaller of environmental benefi ts including The following are some of the initiatives: footprint, reduction in manual social-economic factors, better Encouraging local manufacturers intervention, reduction in overhead carbon footprint with reduced to develop and manufacture costs etc. consumption of non-renewable such materials where the import energy sources. dependency is 100%. (iii) Continuous Manufacturing – API-2 Transportation Load Builder (TLB): To Providing long-term commitments In this product, a highly exothermic support fi nished goods distribution on business continuity. & hazardous reaction involving use in India, a TLB application has been Few packaging material suppliers of n-Butyllithium has been designed designed which tracks the stock were encouraged to set-up unit & optimised in fl ow using Vapourtec status of materials at warehouses close to our manufacturing site at fl ow reactor at lab. Rig, which is vis-à-vis the desired target stock Baddi, Himachal Pradesh. designed for scale up to plant, is levels and automatically prompts Sharing good practices via audits installed at CTO-SEZ and few trials for stock transfer to replenish the and workshops. have been taken to establish fl ow defi cits at the sales warehouse. Mandatory supplier trainings for new process at plant scale. Better control It minimizes the transportation costs vendors. on reaction and inherent safety is by creating transfer proposals using Ensuring that the supplier payment achieved by changing this reaction the truck sizes defi ned for each terms for small producers is not from batch to fl ow. transportation lane and optimizing more than 45 days. the Full Truck Load (FTL). With this Inculcating culture of resource 3. Does the company have procedures project, we are also: conservations among local in place for sustainable sourcing 1. Identifying SKU sales warehouse producers with regard to improved (including transportation)? combinations where business solvent recovery effi ciencies and If yes, what percentage of your is at risk of losing sales due to eliminating usage of hazardous inputs was sourced sustainably? stock outs or low coverage; solvents. Yes, we have well defi ned and 2. Ensuring product availability; Nurtured small entrepreneurs with documented 'Supplier Code of Conduct' 3. Reducing manual intervention in both fi nancial and technical support addressing all sustainable sourcing the process; and in order to raise their competency elements like ethics, labor & human 4. Maximizing truck loads reducing to meet our and current market rights, wages & benefi ts, health and overall cost. expectations.

28 Company Overview Statutory Reports Financial Statements Annual Report 2018-19

7. Please indicate the number of complaints relating to child labor, forced labor, involuntary labor, sexual harassment in the last ﬁ nancial year and pending, as on the end of the ﬁ nancial year. Table 2 provides the details.

8. What percentage of your employees were given safety & skill up-gradation training in the last year? We have trained 4,139 employees for skill up-gradation. 10,020 employees underwent safety refresher training program.

PRINCIPLE 4 STAKEHOLDER ENGAGEMENT 1. Has the company mapped 5. Does the company have a PRINCIPLE 3 its internal and external mechanism to recycle products EMPLOYEE WELLBEING stakeholders? and wastes? If yes, what is 1. Please indicate the total number of Yes, we have mapped our internal the percentage of recycled employees. and external stakeholders. products and wastes. 21,966 We have taken a target to go for 2. Out of the above, has the zero solid waste to landfi ll by the 2. Please indicate the total number company identifi ed the end of 2020. For the same we of employees hired on temporary/ disadvantaged, vulnerable and have taken a few initiatives to contractual/casual basis. marginalized stakeholders? reuse/recycle the waste. 877 Yes, we have identifi ed disadvantaged, vulnerable and Total 17,678* tons of hazardous 3. Please indicate the number of marginalized stakeholders. waste was generated during the permanent women employees. reporting period. Out of the total 3,977 3. Are there any special initiatives hazardous waste generated, taken by the company to 94.6% of the waste was sent to 4. Please indicate the number engage with the disadvantaged, cement industries for co-processing of permanent employees with vulnerable and marginalized thereby eliminating off site disabilities. stakeholders? incineration. Almost 4.6% waste 51 in India We believe businesses must was sent for recycling. strengthen capabilities to fulfi l Thus, 99.2% of hazardous 5. Do you have an employee stakeholder aspirations through waste was co-processed or association that is recognized by greater engagement. We build lasting recycled. Our API facilities have management? bonds with all our stakeholders, already achieved zero solid waste Yes internal and external, through to landfi ll. We have strengthened meaningful deliberations. This process our eff orts to be 100% zero waste 6. What percentage of your permanent helps us review our actions, rethink to landfi ll by 2020. employees is members of this our roadmap, redress grievances and recognized employee association? recognize new avenues of growth. 4.4% TABLE 2 NO. OF COMPLAINTS NO. OF COMPLAINTS SL. CATEGORY FILED DURING THE PENDING AS ON END OF NO. FINANCIAL YEAR THE FINANCIAL YEAR 1 Child labor/forced labor/involuntary labor 0 0 2 Sexual harassment# 16 1@ 3 Discriminatory employment 00 # 16 complaints received during the year. @ Since addressed. * Data pertains to India Operations.

Building a winning future 29 Dr. Reddy’s Laboratories Limited

Yes, we have identifi ed clusters of have achieved “B” score band. We are stakeholders who are directly and also participating on behalf of our indirectly aff ected by our operations, key customers in the CDP-SC (Supply and have developed targeted We have a well chain) disclosure and we have achieved engagement mechanisms for each defi ned Safety, Health “A-” band for the same in CDP 2018. cluster. Table 3 details our engagement & Environmental policy The CDP 2018 report can be accessed platforms for each stakeholder group. in place to motivate our at https://bit.ly/2Ipm5pk. employees to minimise our We are also disclosing our water environmental PRINCIPLE 5 footprint through CDP’s water impact. HUMAN RIGHTS disclosure. In CDP 2018, we have 1. Does the policy of the company achieved “B-“ score band in it. on human rights cover only We publicly report on our environmental the company or extend to the performance through our Sustainability. group/joint ventures/suppliers/ motivate our employees to minimise our Report. Please refer to page no: 15 to contractors/NGOs/others? environmental impact. The policy and 17 of our Sustainability Report 2017-18 At present, our policy is extended to the principles are also communicated to all our for details regarding the environmental group, suppliers, contractors and NGOs. wholly owned subsidiaries and ensure that initiatives taken at our units. they are in compliance with the policy. 2. How many stakeholder complaints Our sustainability report for have been received in the past 2. Does the company have 2017-18 can be accessed at: fi nancial year and what percent strategies/initiatives to address www.drreddys.com/our was satisfactorily resolved by the global environmental issues -citizenship/sustainability/ management? such as climate change, global We did not receive any complaints in the warming, etc.? 3. Does the company identify and last fi nancial year. We are a responsible corporate assess potential environmental committed towards managing climate risks? PRINCIPLE 6 change both within and beyond our Yes, we identify and assess potential sphere of infl uence. environmental risks and mitigate them ENVIRONMENT to eliminate environmental risks through 1. Does the policy related to principle Yes, we have internal commitments enterprise risk management (ERM) 6 cover only the company or to address climate change and global initiative. extends to the group/joint ventures/ warming. suppliers/contractor/NGO/others. Through Carbon Disclosure Project The environmental risks as identifi ed We have a well defi ned Safety, Health (CDP), we are publicly disclosing our are reviewed by the risk management and Environmental policy in place to carbon foot print to all stakeholders committee of the board on a periodic at regular intervals. In CDP 2018, we basis. TABLE 3 KEY STAKEHOLDERS ENGAGEMENT PLATFORMS EMPLOYEES The driving forces of the organisation, our employees deserve a safe, Organisation health index | Inhouse publications | Intranet | Internal inclusive and empowering work place with the freedom to act, innovate networking platform | CEO communication | 360 degree feedback | and grow not just as professionals but also individuals. Celebrations | Training programs | Health page INVESTORS AND SHAREHOLDERS Our investors and shareholders put trust and fi nancial capital in the Analyst meets | Investor conferences | Quarterly results | Annual reports organisation and expect a steady return on their investments. | Sustainability reports | Earning calls | E-mail communication | Annual general meetings | Offi cial news releases and presentations SOCIETY Communities across the world, specially the economically weaker Through partners like Dr. Reddy’s Foundation, CSIM, NICE Foundation sections of the society, whose lives are impacted by our social and local NGO partners and employee volunteering program Dr. Reddy’s contributions. Healthcare professionals who rely on today’s products Foundation for Health and Education (DRFHE) Inner circle - Relationship and tomorrow’s innovations. building programs | Abhilasha - Nursing effi ciency program | Sarathi - Doctor’s assistant program | Sanjeevani - Pharmacists program | Sutradhar - Ward boy’s program | Akriti - Orthopedicians’ program CUSTOMERS AND PARTNERS Insurers, vendors, suppliers, distributors, Government, regulators and Customers: Customer satisfaction survey, regular business meetings business partners who support various aspects of our operations. Business partners - Vendors: Vendor meets, strategic business partner training and development

30 Company Overview Statutory Reports Financial Statements Annual Report 2018-19

4. Does the company have any Indian Pharmaceutical Alliance (IPA) project related to clean Indian Drug Manufacturers’ development mechanism? Also, Association (IDMA) if yes, whether any environment India – Russia CEO Council of CII compliance report is fi led? India-Spain CEO Forum for No, we have not fi led any project Economic Expansion 49.4 mn under clean development mechanism. India-Indonesia CEO Forum kwh However, we have implemented 188 Solar energy consumption energy conservation projects across 2. Have you advocated/lobbied in FY2019 various business units in FY2019 and through above associations for the accrued savings of ` 233.7 million, advancement or improvement of thus eliminating green house gases public good? (GHG) emission. We have advocated for economic reforms through these associations. livelihood and health. The key programs 5. Has the company undertaken are described below: any other initiatives on clean PRINCIPLE 8 technology, energy effi ciency, EQUITABLE DEVELOPMENT Education renewable energy, etc.? 1. Does the company have specifi ed Our education initiatives focus on enhancing Yes, we as responsible corporate, have programs/initiatives/projects in the quality of education. undertaken many energy conservation pursuit of the policy related to Pudami neighborhood schools and initiatives. In FY2019, we have Principle 8? English primaries aim to provide implemented 188 energy conservations We are focusing on specifi c CSR quality English medium education to projects across various business units initiatives that support social children from underprivileged sections. and accrued savings of ` 233.7 million. development. The implementation of 15 Pudami schools are educating over these programs is carried out through 7,199 students. Kallam Anji Reddy The share of renewable energy in our various partner organizations. We work Vidyalaya (KARV), a model Pudami total energy consumption has also primarily in the areas of education, school caters to 2,300 students. increased; solar energy consumption for FY2019 is around 49.4 million kwh, thereby we have avoided carbon

emission by 46,473 tons of CO2e. We have also generated 179.26 TJ of energy using biomass/rice husk briquettes, thus eliminating GHG

emission by 18,323 tons of CO2e.

6. Are the emissions/waste generated by the company with in the permissible limits given by CPCB/ SPCB for the ﬁ nancial year being reported? Yes, Air emissions and waste generated by us are within the permissible limits prescribed by environmental regulators.

7. Number of show cause/legal notices received from CPCB/SPCB which are pending (i.e. not resolved to satisfaction) as on end of ﬁ nancial year. Only one notice received from CPCB is pending as on end of FY2019.

PRINCIPLE 7 POLICY ADVOCACY 1. Is your company a member of any trade and chamber or association? If Yes, name only those major ones that your business deals with: The Confederation of Indian Industry (CII)

Building a winning future 31 Dr. Reddy’s Laboratories Limited

Kallam Anji Reddy Vocational Junior lab visits. Additionally, the mobile his/her profession-of-choice and help College (KAR-VJR) was established science lab conducted 71 community pursue their career. In FY2019, we in 2003, trains tenth class passed visits covering both the children and the impacted 1,791 youth. students in two-year vocational courses. adults in the community. Grow PwD: Grow People with Disability The college off ers courses such as (PwD), a skill development program, Computer Science, Computer Graphics Health initiatives where diff erently abled youth are Animation, Accounting and Taxation The Community Health Intervention given training in market driven skills and Medical Lab Technician. The total Program (CHIP), which covers 145 villages which enables them to gain a suitable strength of students in the college for in Srikakulam, Nalgonda and Vizianagaram employment opportunity. In FY2019, FY2019 was 733. districts. This project was started in 13 'Diversity and Inclusion' workshops School Improvement Program (SIP) partnership with the NICE foundation to for corporates were conducted in is implemented in 129 government provide primary and preventive care at partnership with Skill Council for schools covering 59,000 students, the doorstep, to a large segment of rural Persons with Disability (SCPwD). across seven districts of Andhra Pradesh population that do not have access to 254 employers participated in these and Telangana. Through SIP, we provide safe and reliable healthcare in the region. workshops. remedial learning, computer skills, In FY2019, we reached out to a population science education via mobile science of 2.15 lakhs. labs and basic amenities such as safe water and sanitation. SIP also provides Livelihood scholarships for meritorious students to Our livelihood programs, implemented pursue their higher education. through: Project Prerna, implemented in Dr. Reddy’s Foundation (DRF), focus on partnership with Agastya International making the Indian youth employable Foundation, focuses particularly on and enhance their earning potential. 7,199 science education. A mobile lab Grow: The program particularly aims reaches out to schools to impart science at delivering high quality skill training Students educated through education through science labs/fairs and to youth. It particularly focuses on 15 Pudami schools reading clubs in schools. In FY2019, improving ‘Core Employability’ skills to 3,366 students in 14 schools were ensure that the youth is equipped with covered through 191 mobile science appropriate knowledge and skills for

32 Company Overview Statutory Reports Financial Statements Annual Report 2018-19

Marking Integrated Transformation For education program, we encourage allocate bids and customers from 2013 for Resourceful Agriculture (MITRA): the participation of parents in the school through at least 2016, with respect This program assists farmers on management committee (SMC) meetings, to two generic drugs. Initially, our technology and methodology in farming. in which even local leaders participate, to U.S. subsidiaries were not named as This program helps them enhance instill ownership. Mandal education offi cer defendants. However, in April 2017, their income by increasing productivity. (MEO) on quarterly basis reviews the a total of 45 states, plus the District In FY2019, we reached out to 1,640 school performance. Youth participating in of Columbia and the Commonwealth lead farmers and 20,000 fellow farmers the vocational skills enhancing programs, of Puerto Rico, joined as plaintiff s in through this program. pay a small percentage of the course this case (the “State AG Action”) which fees. For health program, local panchayat in August 2017, were consolidated Developing change makers: and villagers were involved right at the with the private plaintiff class actions We trained 51 budding social change beginning. Villagers and local government pending in the multi-district litigation agents on entrepreneurial and authorities have given space for running (“MDL-2724”) in the United States leadership skills through Centre for out patient (OP) wards and benefi ciaries District Court for the Eastern District of Social Initiatives and Management i.e. the community members are given Pennsylvania. (CSIM) – Hyderabad. the responsibility of running the OP and scheduling the patients. As a result, On 31 October 2017, the Attorneys 2. Are the programmes/projects patients are showing positive attitude General for the 45 States, plus undertaken through in-house team/ towards medical services provided at the District of Columbia and the own foundation/external NGO/ their door steps. For other community Commonwealth of Puerto Rico, fi led an government structures/any other development initiatives as well, we Amended Complaint in the State AG organization? engage the local authorities whose active Action in MDL-2724 which added our We engage with the community involvement encourages participation and U.S. subsidiary, Dr. Reddy’s Laboratories, through our partners such as ownership from the community members. Inc., as a defendant. Further, on Dr. Reddy’s Foundation, Naandi 10 May 2019, the Attorneys Foundation, NICE Foundation, Agastya PRINCIPLE 9 General of forty-nine U.S. States, the International Foundation and other Commonwealth of Puerto Rico and the CUSTOMER VALUE similar organizations. District of Columbia, fi led a Complaint 1. What percentage of customer in the United States District Court for complaints/consumer cases are 3. Have you done any impact the District of Connecticut against pending as on end of fi nancial year? assessment of your initiative? twenty-one generic pharmaceutical During the year ended 31 March 2019, We review our internal assessment companies (including our U.S. there are 87 consumer complaints systems and projects from time to time. subsidiary) and fi fteen individual which are pending for investigations. Each project has specifi c deliverables defendants alleging that our U.S. against which it is measured. subsidiary and the other named 2. Does the company display product defendants engaged in a conspiracy information on the product label, 4. What is your company’s direct to fi x prices and to allocate bids and over and above what is mandated contribution to community customers in the United States in the as per local laws? development projects – Amount sale of the 116 named drugs. Our U.S. Yes, we have complied with the labelling in ` and the details of the projects subsidiary is specifi cally named as a requirements. undertaken? defendant with respect to fi ve generic We contributed ` 262 million for drugs (ciprofl oxacin HCL tablets, 3. Is there any case fi led by any community development. glimepiride tablets, oxaprozin tablets, stakeholder against the company paricalcitol and tizanidine), and is named regarding unfair trade practices, For details of the projects undertaken as an alleged co-conspirator on an irresponsible advertising and/ or refer the projects listed in the CSR alleged “overarching conspiracy” with anti-competitive behaviour during Report. Refer page no. 91. respect to the other thirteen generic the last fi ve years and pending as drugs named. We deny the claims on end of fi nancial year? 5. Have you taken steps to ensure asserted and intend to vigorously On 18 December 2016, the Attorneys that this community development defend against the claims asserted. General for 19 states in the United initiative is successfully adopted by States of America fi led claims in the the community? 4. Did your company carry out United States District Court for the Our community development initiatives any consumer survey/consumer District of Connecticut against a are inclusive and designed towards satisfaction trends? number of pharmaceutical companies sustainability. We involve gram No alleging conspiracies to fi x prices and to panchayat or local government in the project development discussions.

Building a winning future 33 Dr. Reddy’s Laboratories Limited

MANAGEMENT DISCUSSION AND ANALYSIS

With the credo of ‘Good Health Can’t Wait’, we are committed to providing aff ordable and innovative medicines for healthier lives.

1. FY2019 represents ﬁ scal year 2018-19, from 1 April 2018 to 31 March 2019, and analogously for FY2018 and previously such labelled years. 2. Unless otherwise stated, ﬁ nancial data given in this Management Discussion and Analysis is based on the company’s consolidated results prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board.

34 Company Overview Statutory Reports Financial Statements Annual Report 2018-19

As an integrated global pharmaceutical enterprise, we operate through three key core business segments:

Global Generics (GG), Pharmaceutical Services & Proprietary Products (PP), which covers branded and Active Ingredients (PSAI), which mainly comprises the unbranded prescription which accounts for Active diff erentiated formulations medicine as well as over-the- Pharmaceutical Ingredients business, focusing on certain counter (OTC) pharmaceutical (APIs) and Custom key medical needs. products. It also includes the Pharmaceutical Services (CPS). biosimilars business.

Through our portfolio of products in the US, regulatory hurdles and and services, we operate in multiple consequential delays in launches of new therapeutic areas — the major ones products, FY2019 witnessed much better being gastrointestinal, oncology, performance for us. Though challenges CONSOLIDATED cardiovascular, pain management, central continued in terms of pricing pressure FINANCIAL nervous system (CNS), anti-infective, in the US as well as in Europe, we were RESULTS FOR respiratory and dermatology. able to grow signifi cantly in the branded FY2019 markets - India, Russia and several other Revenues We are present in several countries emerging markets. across the world, with the key ₹ 154 billion 8% geographies being the US, Europe, India In addition, continued focus on cost and Russia. control and creating a leaner and Gross profi t more de-layered business model After the last couple of years, when helped to improve profi ts. The fi nancial ₹ 83 billion 9% we had to deal with extremely diffi cult performance also benefi ted due to market conditions on account of intense depreciation of rupee against the US Gross profi t margin price competition, channel consolidation dollar. 54.2% 0.5%

EBITDA

‘Good Health Can’t Wait’ translates to meeting our ﬁ ve promises. ₹ 34.2 billion 42%

Operating profi t 75% Bringing ₹ 20.9 billion Enabling and expensive Working with helping our medicines Profi t Before Tax (PBT) partners to partners ensure within reach help them that our medicines ₹ 22.4 billion 56% succeed are available where needed Profi t After Tax (PAT) Helping patients Addressing 92% manage disease ₹ 18.8 billion unmet patient better needs Diluted Earnings Per Share (EPS) ₹ 113.09 92%

growth over previous year

Building a winning future 35 Dr. Reddy’s Laboratories Limited

unit at Jeedimetla, Hyderabad, and - which was partially off set by an (c) the rights to distribute and market increase in revenue from Germany. the specialty derma brands portfolio. Revenue from Emerging Markets These, and other such initiatives, was ₹ 28.9 billion, a growth of 28% should signifi cantly contribute in compared to FY2018. This expansion focusing each business to drive was largely on account of increased ₹122.9 bn future growth. revenues from our base business, Revenue from GG in FY2019 new product launches and relatively A SNAPSHOT OF PERFORMANCE rapid scaling up of business in some of the new markets. GLOBAL GENERICS (GG) - Revenue from Russia was Revenue from GG in FY2019 was ₹ 15.3 billion, representing a ₹ 122.9 billion, which represented year-on-year growth of 21%. an increase of 8% compared to the - Revenue from other CIS countries previous year. This growth was Improved fi nancial performance in FY2019 and Romania was ₹ 5.2 billion, an largely attributable to impressive were on account of the following factors: annual growth of 34%. performances witnessed in the - Revenue from Rest of the World Emerging Markets and in India. 1. Growth in the branded generics (RoW) territories was ₹ 8.4 billion, a Revenue from North America Generics markets: we saw good growth across year-on-year growth of 36%. (NAG) was ₹ 60 billion, which remained key branded markets, namely India, Revenue from India was ₹ 26.2 billion, more or less fl at compared to FY2018. Russia, Brazil, CIS countries and which represented a growth of 12% There was a growth in volumes for some other regions. We improved our compared to FY2018. This revenue certain base products, coupled with the base business across these markets, growth was largely attributable to an full year benefi ts of products launched launched new products and scaled increase in both sales volume and during the second half of previous up in new geographies like Brazil and price of our existing products, as well year. Growth was further supported by Colombia. The initial hiccups faced as additional revenue from the launch 24 new products which were launched during the GST transition in India in of new products. During FY2019, during the year - the major ones FY2018 were settled, and the business we launched 15 new brands in India. being Buprenorphine and Naloxone was back to normal in FY2019. sublingual fi lms, Levetiracetam bags, PHARMACEUTICAL SERVICES AND Colesevelam, Hydroxychloroquine and 2. Executing measures for prudent cost ACTIVE INGREDIENTS (PSAI) Thiotepa injection. However, due to control: We embarked on a journey to Revenues from PSAI stood at ₹ 24.1 billion, an increase in competitive intensity, prune our cost structures to be more or a growth of 10% versus FY2018. During there were signifi cant price erosions for productive and eliminate waste across the year, we fi led 82 Drug Master Files some key products such as Sevelamer, the businesses. Robust initiatives were (DMFs) worldwide including nine fi lings in Decitabine Injection, Metoprolol put in place to drive cost effi ciencies in the US. and Valgancyclovir. manufacturing; to improve procurement In FY2019, we fi led 20 new effi ciencies; to optimize on research PROPRIETARY PRODUCTS (PP) Abbreviated New Drug Applications and development expenditure and Revenues from PP was ₹ 4.7 billion, this (ANDAs) with the USFDA. As on 31 productivity; and to apply productivity translated to a growth of 12% versus March 2019 we had 110 generic fi lings metrices on marketing spends. In FY2018 and was largely due to sale and pending approval from the USFDA - addition, several measures were assignment of the US rights relating to the comprising 107 ANDAs and three New undertaken to improve manpower dermatology brands. Drug Applications (NDAs) fi led under productivity, such as restructuring the the Section 505(b)(2) route of the US levels of hierarchy, delayering and Federal Food, Drug and Cosmetic eliminating overlaps. Act. Of the 107 ANDAs, 60 are Para IV applications, of which we believe 3. Creating a leaner business model: Our 34 have ‘First to File’ status. renewal strategy includes achieving Revenue from Europe was ₹ 7.9 billion, self-sustainability, streamlining and representing a decline of 4% versus Robust optimizing global cost structures to FY2018. This was primarily on account initiatives were put create profi table growth for each of of lower sales revenue in the United in place to drive cost its businesses. During FY2019, as Kingdom, largely due to high price effi ciencies in manufacturing; part of this strategy, we sold (a) the erosion on some of our products to improve procurement antibiotic formulations manufacturing effi ciencies; to optimize facility and related assets in Bristol, sales and marketing spend, (b) the API manufacturing business and improve productivity on research and development expenditure.

36 Company Overview Statutory Reports Financial Statements Annual Report 2018-19

GLOBAL PHARMACEUTICAL 2018-24 and reach US$ 1.2 trillion- MARKET OUTLOOK1 a signifi cant increase in the annual Across the world, the global pharmaceutical growth rate compared to around 1.2% A range of novel industry had to deal with political for period 2011-17. technologies, such as uncertainty, increased pricing pressures, This growth will be augmented by induced pluripotent consolidation in general and channel a continued uptick and anticipated stem cells (iPSC) and consolidation in particular, higher pressure launch of novel therapies addressing CRISPR/Cas9, and others on payors to reduce healthcare costs, key unmet needs, faster approvals, involving modifi ed cells or increased patient empowerment, more favorable demographics as gene-modifi cation stringent regulatory environment, and lower well as increasing access to tools are under number of approvals by the USFDA. medicines globally. development. However, more active payor scrutiny, Though not new to the industry, these sales losses from genericization and challenges had to be dealt with increased biosimilar competition will act as brakes intensity and rigor. To do so, the industry on this growth. having a senior level patient advocacy had to focus on structural changes. Some role by 2019. of these were: (i) newer business models, Some key trends which are expected to In response to stakeholder (ii) increased focus on productivity using defi ne the pharmaceutical space in the perceptions in the US that they are leaner and more integrated models, near future are worth noting. These are: paying inappropriately high costs for (iii) targeting of new markets, (iv) inorganic A range of novel technologies, such as medicines, the federal government has capability building, (v) higher adoption induced pluripotent stem cells (iPSC) proposed a sweeping set of pricing and leveraging of new technologies, and CRISPR/Cas9, and others involving reforms for government programs - (vi) increased emphasis on diff erentiation, modifi ed cells or gene-modifi cation each with varying levels of impact and (vii) focusing on unmet patient needs, and tools are under development. probability of being enacted. (viii) even foraying into new and advanced These technologies are expected There will be more emerging bio- fi elds of science. to treat limited patient populations pharma (EBP) companies launching and raise important questions for new medicines in the next fi ve years. Such a transitional journey is inevitable. healthcare stakeholders around cost It is estimated that over one-third of The challenge, however, lies in arriving and accessibility. drugs launched in the next fi ve years at the desired mix of the key essentials - Mobile apps are being increasingly will be brought to market by these including, but not necessarily limited to, submitted to the USFDA for clearance EBP enterprises. patient centricity, diff erentiation, technology and approval. These prescription The next fi ve years will pose a number adoption, preferred level of scientifi c digital therapeutics (DTx) are of challenges to biopharmaceutical innovation and portfolio choices. becoming a new treatment modality companies, especially with payor with indications and disease-specifi c actions on prices. It remains to be seen Thus, the industry is at a juncture where treatment eff ectiveness claims in their whether these companies can repeat seismic shifts and structural challenges are prescribing labels. their past successes in terms of cost rampant. Yet, at the same time, the outlook Over the next fi ve years, life sciences management. is quite positive. companies will continue to develop and Existing policies and new legislations invest in artifi cial intelligence, machine will aff ect opioid prescribing and use According to IQVIA (formerly Quintiles learning and deep learning programs right up to 2023. The dynamics around and IMS Health Inc.) in its January 2019 leading to breakthroughs impacting prescription opioids, plus the issues report, the global pharmaceutical industry the discovery and development around illicit drug use and overdoses, is expected to exceed US$ 1.5 trillion by of medicines. will remain complex and challenging to 2023 growing at a compounded annual Manufacturers of new medicines where address. growth rate (CAGR) of anywhere between safety has been well demonstrated, but 3% and 6%. Some of the report’s major where additional or alternative uses To assess the market potential and outlook, conclusions are given below. of drugs have not yet been approved, it is useful to dwell upon the opportunities The key drivers of growth will continue will incorporate real-world evidence to to be the US and the ‘Pharmerging’ support approval for novel indications. markets with the former expected to Pharmaceutical companies will show a CAGR of 4-7% and the latter of continue hiring specialists in patient 5-8%. care and patient advocacy, with most Prescription drug sales are expected of the top 20 pharma companies to grow at a CAGR exceeding 6.4% for US$1.5 tn

Global pharmaceutical industry by 2023 1 The outlook and the key themes discussed in this section are primarily from ‘The Global Use of Medicine in 2019 and Outlook to 2023’ by IQVIA Institute; ‘Pharma Outlook 2030 – Evolution to Revolution’ by KPMG; ‘Pharma Outlook: 12 Trends to Watch in 2019’ by CPhI Worldwide. Information has also been gathered from various other publicly available sources.

Building a winning future 37 Dr. Reddy’s Laboratories Limited

market access, patient and physician industry, there is enormous scope for adoption, cost/benefi t discussions, increasing effi ciency, particularly in drug reimbursement and manufacturing development, where it often lacks the scale-up. Despite these challenges, the necessary capital to run large trials and area is generating enormous interest. testing. At the same time, AI is maturing 66 innovator There has been a surge in activity, and from hype to more tangible use. The new therapeutic areas are being targeted predictive and analytic powers of AI biologics which are being augmented with a should enable companies to make smarter, healthy pipeline. faster and more strategic decisions. AI will Due to come off -patent increase drug development effi ciency by in the US between According to December 2018 report 2020 and 2025 on ‘Medicines in Development’, fi ve not wasting research eff orts - for example, diseases are being currently targeted by creating alternative hypotheses for trials with cell and gene therapies. Over by discovering more data to enable drug 100 diseases are being explored for repurposing. Additionally, the infl ux of data and challenges. Given below are a few potential treatment, and nearly 300 cell from new devices will enable real-time, notable opportunities for the global and gene therapies are in development on-the-go, instant results. pharmaceutical industry: - either in clinical trials or awaiting review with the USFDA. AI will be critical to the future of pharma as Orphan Drugs: The orphan drugs sector the amount of available data and number is expected to continue outperforming the Biologics and Biosimilar: One should of monitoring devices increase. In the short market almost doubling during 2018-2024 expect to see a greater number of USFDA term, it will have a real impact through its to reach US$ 262 billion, and accounting biosimilar approvals in 2019, as more ability to collect and aggregate disparate for approximately 20% of prescription innovator biologics reach their market data sets and identify patterns which in sales in 2024. This highlights the industry’s exclusivity expiration. turn will generate more insights. The real continued move to address small groups Although the US still lags behind the potential of AI and machine learning will of neglected patients with high unmet EU - with only a third of the number be in enabling pharma companies to be need and to benefi t from regulatory and of biosimilar approvals - this is set smarter, faster, and more cost effi cient. fi nancial incentives. to change. Orphan drugs are expected to The latest biosimilar report from Industry-Wide Consolidation: Every represent 45% of new active PharmSource, a GlobalData segment of the pharmaceutical industry substances - provided the level of product, shows that we are entering is expected to continue witnessing USFDA orphan designations for in- the third wave of opportunity for consolidation throughout 2019. process and break-through research biosimilar makers, with 66 innovator In recent past, there were two high produce the anticipated results, in line biologics due to come off -patent in profi le acquisitions of oncology- with current and historic trends. the US between 2020 and 2025. focused big pharma companies - of Though the patient population will be Consequently, there should be an BMS acquiring Celgene, and of Eli Lilly limited, the price per patient shall be increasing number of biosimilar review purchasing Loxo. increasingly higher. Average median applications to the USFDA. Other innovators are expected to prices are expected to be above The current volume of clinical follow with transformational or bolt-on US$ 100,000 per year by 2023. development candidates indicate there deals to secure competitive positions in However, new launch prices may will be more biosimilar approvals in the specialty and rare disease indications. increase at a slower rate thanks to a future from companies based in Europe Additional consolidation is also likely combination of factors such as price and Asia - especially China and India - in generics, to further stabilize price competition with other innovative than those from the US. erosion and add new, high-barrier-to- molecules and independent review entry products to portfolios. of pricing by regulatory bodies like Artifi cial Intelligence (AI) to improve Shifting regulatory demands, the Institute for Clinical and Economic productivity: In the pharmaceutical particularly in markets like China, may Review (ICER). Having said so, once also help to drive consolidation. these hurdles are overcome, the prices On the contract development and will continue to rise incrementally. manufacturing side, M&A will continue to be important to compete at scale, Gene and Cell Therapies: Gene and cell off er full lines of complementary or therapy is no longer a distant possibility integrated services, and secure the but a reality. Building on the approval and AI will be critical to the newest technologies, particularly as launch of CAR-T therapies in 2017 and the future of pharma as the drug pipelines increasingly fi ll with launch of Luxturna (Spark Therapeutics), amount of available cell-based therapies or other highly the fi rst USFDA approved gene therapy data and number of complex formulations. for vision loss in 2018, these treatments monitoring devices The healthcare industry also saw are expected to gain momentum and increase. several big vertical integrations should increasingly contribute to growth. in 2018 - such as Aetna with CVS, This space though is not devoid of various and Cigna with Express Scripts. challenges including commercialization,

38 Company Overview Statutory Reports Financial Statements Annual Report 2018-19

These deals have been justifi ed as To manage aff ordability for the opportunities to gain effi ciency and government programs and the lower cost of care, but it is still too early population in general, the Chinese to determine their long-term impact. government has focused on managing The trend will likely continue in 2019 drug pricing through the use of as the industry looks for new ways to an Essential Drug List (EDL) and a control costs and increase margins. US$ 600 bn National Reimbursement Drug List (NRDL). Both require manufacturers to US spend by 2023 Outlook for the US Market: According to off er substantial discounts. In return, a recent IQVIA report, while the invoice listing on the NRDL off ers wider spend in the US is expected to grow at access to the population. The NRDL a rate of 4% to 7% to US$ 600 billion by had been updated periodically: in 2023, the net growth in manufacturers’ 2001, 2004, and 2009 with the most revenue will be a bit lower, at 3% to 6%. recently in 2017 after an eight-year Growth is expected to be driven by new gap. Adoption of newer medicines products and brand pricing, which shall from this updated reimbursement list create a win-win situation for multiple partially be off set by patent expiries will drive signifi cant growth for novel healthcare stakeholders if structured and and generic launches after the expiry of brands, while unbranded generic implemented correctly. market exclusivity. medicines and locally manufactured With cardiovascular diseases and non-original brands are expected to Rise of China: Despite concerns about a cancer continuing to remain the grow slowly. trade war between the US and China, leading causes of death in the US, Though the reforms are encouraging, it is not a surprise that China is still viewed there has been an increased shift in the big challenge that still remains as a huge market opportunity for the focus towards list prices of recently is how to best navigate the Chinese pharmaceutical industry. With its huge launched drugs. regulatory and commercial landscape. population and growing middle class, In recent times, there has been a spurt it has become a leader in R&D innovation in cases where price increases by Better life expectancy and lower mortality for medicine, particularly regenerative manufacturers on established products rates culminating in an aging global medicine - and perhaps even gene-editing have come under greater scrutiny by population: The United Nations projects based on the news from late 2018. the public and policy makers. that the global life expectancy will reach China has expanded to being the second Cost containment measures such as beyond 75 years by the year 2050. This largest pharmaceutical market globally price and reimbursement cuts are means that the number of elderly people with US$ 137 billion in total spend in leading to tougher market conditions will see a substantial increase in the 2018 and a CAGR of 8% during 2013-18. for drug manufacturers and shrinking years to come. It is projected that this Much of the growth has been driven profi t margins. In response to these number will globally rise to over 19% by the Central Government’s reforms pressures, companies are reassessing in 2050. to increase insurance access to both their strategies and market focus. For the developed regions, individuals rural and urban residents; to expand aged 60 and over will make up and modernize the hospital system; Value Based Pricing (VBP): Payors, one-third of their population, while for and to better integrate primary care insurers and hospitals are no longer developing nations it will consist of services. Broader economic growth willing to pay simply for a product; but are one-fi fth. has enabled more Chinese patients to looking for VBP which is dependent upon With increasing age, disabilities and access and aff ord medicines; and per success of the products and procedures chronic diseases such as cancer, capita rates of use and spending have through measurable outcomes. Although Alzheimer’s, respiratory and heart risen signifi cantly. VBP comes with its share of risks and problems are expected to involve Recent regulatory reforms are challenges, there is a large potential to repeated and, hence expensive health expected to act as an impetus to the treatments. Nations will need to pharmaceutical landscape. These improve their healthcare systems so involve realignment of regulatory they can provide better yet more cost- agencies, including the State Medical eff ective treatment for the elderly. Insurance Administration (SMIA) and State Drug Administration (SDA), to drive consistency, speed and effi ciency OUR MARKET PERFORMANCE, in implementation of policies; hospital FY2019 US$ 137 bn reforms to reduce the profi t motive; NORTH AMERICA GENERICS (NAG) and improved co-ordination with NAG is our largest market. In FY2019, it China's total spend in 2018 primary care to support the expected contributed to around 49% of the GG sales, expansion of hospitals without major and 39% of our overall sales. burden on the government.

Building a winning future 39 Dr. Reddy’s Laboratories Limited

Revenue from the region for FY2019 Our strategy for growth in Emerging Markets was ` 60 billion (US$ 862 million), is to continue improving our market share representing an almost fl at growth of in our chosen therapy areas, including 0.2% over the previous year. As mentioned expansion of biosimilars and the oncology earlier, the year was challenging on portfolio. We will focus on scaling up in our account of signifi cant price erosion faced ₹ 28.9 bn major markets, which include Russia, China, due to increased competition across Brazil, South Africa and Ukraine. Revenue from Emerging some of the major products. The negative Markets in FY2019 impact was off set by increase in volumes EUROPE for some of our base products and new Revenue from Europe in FY2019 was product launches - the major ones being ` 7.9 billion, representing a decline of 4% Buprenorphine and Naloxone sublingual vis-a-vis the previous year. This was on fi lm, Levetiracetam bags, Colesevelam, account of lower sales in the UK, which Hydroxychloroquine and Thiotepa was partly off set by increasing revenues EMERGING MARKETS injection. Some key developments were: from Germany. Revenue growth was Revenue from Emerging Markets for Launched Buprenorphine and impacted due to price erosion in few of FY2019 was ` 28.9 billion, representing Naloxone sublingual fi lm, a therapeutic our key products, coupled with temporary a growth of 28% compared to the previous equivalent generic version of supply disruptions, and delays in some of year. This signifi cant growth has been Suboxone®, a combination medication the launches. The supply issues have been a result of increased revenues from our which is used to treat opioid use largely resolved and we expect this market base business, new product launches and disorder. to register growth in FY2020. scale up of business in new markets. Launched Levetiracetam bags, a therapeutic equivalent generic We launched multiple new products in Revenue from Russia for FY2019 was version of HQ Specialty Pharma Germany and the UK during the year and ` 15.3 billion, representing a 21% growth Corporation’s Levetiracetam in Sodium also continued making inroads into the over the previous year. The growth was Chloride Injection, which is used as newly entered countries of France, Italy, 26% in terms of the local currency (ruble). an adjunctive therapy in the treatment and Spain. Currently, Europe comprises 6% In Russia, we launched OTC Nasivin of partial onset seizures in adults with of our global generics sales. In the medium during Q4 FY2018, an in-licensed epilepsy, when oral administration is to long-term, we expect to grow this share product, which gained good traction in temporarily not feasible. by leveraging our in-house portfolio, volumes in FY2019. Launched Colesevelam tablets, seeking in-licensing opportunities, and Our key products - such as Nise, a therapeutic equivalent generic scaling up business in the three new Omez, Ketorol, Cetrine, Ciprolet, version of Welchol® tablets, which countries. Ibuclin, Nise gel, Novigan, Plagril, is used to reduce the amount Razo, Naisivin and Femibion - continue of cholesterol and certain fatty INDIA to be brand leaders (each among substances in the blood. Revenue from India in FY2019 was the top three) in their respective Gained signifi cant market share in ` 26.2 billion, or a growth of 12% categories, as reported by IMS Health certain key products such as Liposomal compared to previous year. According to in its report for the 12-month period Doxorubicin and Atorvastatin. the IQVIA in its report for the 12-month ended 31 March 2019. Filed 20 new ANDAs, which comprise period ended 31 March 2019, our growth some complex products and are across has been 11.3% versus a market growth Revenue from CIS countries (including diff erent dosage forms. of 10.5%. During the year, we improved Romania) was ` 5.2 billion, representing our market rank by three places - from 34% growth over the previous year. Our current priority includes timely new number 16 as per MAT (March 2018) to The growth was led by Kazakhstan, product launches and focus on increasing number 13 as per MAT (March 2019). Romania and Ukraine through the market share of existing products without This growth has been primarily on account increasing sale of existing products as well destroying the value of these drugs. of improvement in the base business as new launches. The strategy is to signifi cantly expand our portfolio and ensure right cost structures During FY2018, we had entered Brazil, for our products to be able to compete in Turkey and Algeria. In FY2019, we scaled this highly competitive market. up our business in these markets. Further we entered in some select ASEAN markets. We will continue to focus on complex Our focus is primarily on institution formulations — primarily injectables and business in most of these countries oral solid dosage forms — as well as OTC through biosimilars and oncology products. ₹ 26.2 bn brands in the medium term, and We have also grown well in China and Revenue from India 505(b)(2) generics, controlled substances expect it to be a relatively high growth in FY2019 under class II, and non-substitutable market in the next few years. generics in the longer term.

40 Company Overview Statutory Reports Financial Statements Annual Report 2018-19

performance led by increase in volumes In FY2020, we will continue to drive of our partners by enabling them to and price in certain products. productivity improvement and transact online and access real time During the year, we launched focus on our core therapeutic areas information about their business and 15 brands in India, including Hervycta and big brands. In the medium- products with us. (the ﬁ fth biosimilar from our internal to-long-term, we will focus on ramping Our strategy of building a sustainable pipeline), which aided growth. Eight up of biosimilars through internal and growing business involves new of our brands (Omez, Omez D, Atarax, and partnered assets and building product launches and ramping up of Econorm, Razo D, Nise, Stamlo, diff erentiated products in relevant base businesses in key geographies. Razo) are in top 300 brands of the IPM. therapies, accompanied by a further We will also leverage our relationship increase of the base business. with key customers by supplying materials that have value addition over PSAI being ‘plain-vanilla’ APIs. We aim to be The PSAI business recorded revenues of a partner of choice for global generics ` 24.1 billion in FY2019, representing manufacturers and achieve global a 10% growth over the previous year. leadership through costs and service. In FY2019, we ﬁ led 82 DMFs globally, of ₹ 24.1 bn which nine were in the US. PROPRIETARY PRODUCTS (PP) During FY2019, we launched our The PP business recorded revenue of PSAI business revenue 4.7 billion in FY2019 in FY2019 advanced B2B Customer Service Portal ` , with a growth called ‘XCEED’, which is expected to of 12%. The contribution from our lead increase the operational effi ciency in-house commercialized product in the

TABLE 1 CONSOLIDATED REVENUE MIX BY SEGMENT (₹ MILLION) FY2019 FY2018 PARTICULARS GROWTH % (US$) (`) % (US$) (`) % Global Generics 1,777 1,22,903 79.9 1,649 1,14,014 80.3 8 North America 59,957 59,822 0.2 Europe* 7,873 8,217 (4) India 26,179 23,322 12 Emerging Markets# 28,894 22,653 28 Pharmaceutical Services and Active 349 24,140 15.7 318 21,992 15.5 10 Ingredients (PSAI) Proprietary Products & Others 98 6,808 4.4 87 6,022 4.2 13 Total 2,225 1,53,851 100 2,054 1,42,028 100 8 * Europe primarily includes Germany, the UK and out-licensing sales business. # Emerging markets refer to Russia, other CIS countries, Romania and Rest of the World markets.

TABLE 2 CONSOLIDATED INCOME STATEMENT (₹ MILLION) FY2019 FY2018 PARTICULARS GROWTH % (US$) (`) % (US$) (`) % Revenues 2,225 1,53,851 100.0 2,054 1,42,028 100.0 8 Cost of Revenues 1,018 70,421 45.8 950 65,724 46.3 7 Gross Profi t 1,206 83,430 54.2 1,103 76,304 53.7 9 Operating Expenses Selling, General & Administrative expenses 707 48,890 31.8 678 46,910 33.0 4 Research and Development expenses 226 15,607 10.1 264 18,265 12.9 (15) Other operating (income) (28) (1,955) (1.3) (11) (788) (0.6) 148 Results from operating activities 302 20,888 13.6 172 11,917 8.4 75 Finance (income), net (16) (1,117) (0.7) (30) (2,080) (1.5) (46) Share of (profi t) of equity accounted investees, (6) (438) (0.3) (5) (344) (0.2) 27 net of income tax Profi t before income tax 325 22,443 14.6 207 14,341 10.1 56 Income tax expense 53 3,648 2.4 66 4,535 3.2 (20) Profi t for the period 272 18,795 12.2 142 9,806 6.9 92 Diluted Earnings Per Share (EPS) (in ₹) 113.09 59.00 92

Building a winning future 41 Dr. Reddy’s Laboratories Limited

neuro franchise, i.e. ZEMBRACE® picked up consideration followed by future through the year along anticipated lines. royalties. Towards the end of the During the year we received the fi nancial year, we divested our derma fi nal approval from the USFDA for commercial portfolio comprising Renewed strategy to our migraine candidate DFN-02 SERNIVO® Spray, 0.05%, PROMISEB® enable us to achieve (Sumatriptan intranasal spray). DFN-02 Topical Cream and TRIANEX® self-sustainability and is a novel intranasal formulation for the 0.05% to Encore Dermatology for an profi table growth for each treatment of acute migraine with or upfront consideration followed by of our businesses. without aura. future milestones. On the R&D front, our focus continues to be on advancing the development of There is a slight change in philosophy to the two in-licensed assets - E7777 and focus more on addressing ‘larger unmet PPC-06 — in addition to the in-house needs’ and ‘bringing a highly selective pipeline in a well calibrated manner and focused innovative approach’ through USFDA OBSERVATIONS: which strives to achieve an optimal global development versus ‘incremental AN UPDATE balance between risks and costs. improvement’. This change should enable It may be recalled that the USFDA Through the year we continued the PP business to off er a meaningful had issued a warning letter dated our eff orts to selectively divest contribution to the market place. At an 5 November 2015 relating to current products. In late September 2018, overall level, this aligns well with our Good Manufacturing Practice (cGMP) the rights to Cloderm® Cream, 0.1% renewed strategy to enable us to achieve deviations at our API manufacturing and its authorized generic were self-sustainability and profi table growth for facilities at Srikakulam, Andhra Pradesh divested to EPI Health for an upfront each of our businesses. and Miryalaguda, Telangana, as well as at our oncology formulation manufacturing TABLE 3 CONSOLIDATED CASH FLOW ACCORDING TO IFRS (₹ MILLION) facility at Duvvada, Visakhapatnam, PARTICULARS FY2019 FY2018 Andhra Pradesh. Opening Cash and Cash Equivalents 2,542 3,779 The contents of the Warning Letter

Cash ﬂ ows from: emanated from Form 483 observations (a) Operating activities 28,704 18,029 that followed inspections of these three (b) Investing activities (7,727) (14,883) sites by the USFDA in November 2014, (c) Financing activities (21,326) (4,440) January 2015 and February-March 2015, Eff ect of exchange rate changes 35 57 respectively. Closing Cash and Cash Equivalents 2,228 2,542 Pending resolution of the issues identiﬁ ed in the Warning Letter, the USFDA TABLE 4 CONSOLIDATED WORKING CAPITAL (₹ MILLION) withheld approval of new products from AS ON AS ON these facilities. PARTICULARS 31 MARCH 31 MARCH CHANGE 2019 2018 After issuance of the Warning Letter, Trade Receivables (A) 39,869 40,617 (748) we promptly instituted corrective and Inventories (B) 33,579 29,089 4,490 preventive actions and submitted a Trade Payables (C) 14,553 16,052 (1,499) comprehensive response to the USFDA, Working Capital (A+B-C) 58,895 53,655 5,240 followed by periodic written updates and Other Current Assets (D) 41,053 39,939 1,115 in-person meetings. Moreover, to minimize the business impact, we transferred Total Current Assets (A+B+D) 114,501 109,645 4,857 certain key products to alternate Short & Long-term loans and 16,381 25,625 (9,244) borrowings, current portion (E) manufacturing facilities. Other Current Liabilities (F) 28,766 28,015 751 The USFDA subsequently re-inspected Total Current Liabilities (C+E+F) 59,700 69,692 (9,992) these facilities between February and April 2017. The outcomes of these TABLE 5 DEBT AND EQUITY POSITION (₹ MILLION) inspections were as follows: AS ON AS ON API facility at Miryalaguda: The USFDA PARTICULARS 31 MARCH 31 MARCH CHANGE raised three observations in the 2019 2018 areas of older methods of validation, Total Shareholder’s Equity 140,197 126,460 13,737 improvements in instrument Long-term debt (current portion) 4,256 63 4,193 calibrations and adherence to Long-term debt (non-current portion) 22,000 25,089 (3,089) United States Pharmacopeia (USP) Short-term borrowings 12,125 25,562 (13,437) test methods. Total Debt 38,381 50,714 (12,333)

42 Company Overview Statutory Reports Financial Statements Annual Report 2018-19

API facility at Srikakulam: The USFDA completed and the USFDA issued raised two observations in the Form 483 with eight observations. We areas of High Performance Liquid responded to these observations on Chromatography (HPLC) maintenance, 20 November 2018. Subsequently, in We remain fully and the management of soft copies February 2019, the USFDA issued an committed to following high of chromatograms. EIR indicating successful closure of standards of the quality Oncology formulation facility audit of this facility. and striving towards further at Duvvada: The USFDA raised strengthening of our quality 13 observations in the areas of Thus, there have been satisfactory audit management systems and investigations, batch production closures in two of the three facilities. processes. records, document controls, At present, we await the reinspection of general computer systems and our API facility at Srikakulam. environmental monitoring. We remain fully committed to following Global corrective actions, as well as some high standards of the quality and REVENUE specifi c actions, were further implemented. striving towards further strengthening The total revenue grew by 8% to `153,851 In addition, a detailed response was of our quality management systems million in FY2019. The growth was primarily submitted to the USFDA which included and processes. Our plans to enhance aided by increase in volume and new root cause, corrective actions and quality management systems and product launches across our businesses preventive actions and impact assessment. operations include improvements in rigor and benefi ts due to depreciation of rupee of investigations and document control against the US dollar, partially off set by The current status for these sites is systems, standardization of instrument price erosion in our GG segment’s North as follows: calibrations, strengthening controls with America (the US and Canada) and the API facility at Miryalaguda: In respect to information technology as Europe businesses. June 2017, the USFDA issued an well as shop fl oor training programs, and Establishment Inspection Report (EIR) simplifying and standardizing standard GROSS PROFIT indicating successful closure of the operating procedures and batch records at Gross profi t increased by 9.3% to ` 83,430 audit of this facility. In January 2019, the shop fl oor. million in FY2019. This resulted in a USFDA has inspected API facility at gross profi t margin of 54.2% in FY2019 - Miryalaguda and one observation We have initiated additional operational representing an increase of 50 basis points was noted. We have responded to the improvements such as shop fl oor compared to FY2018. The gross profi t observation. In May 2019, we have supervision and process walks, margin for GG was 58.5%. The GG gross received an Establishment Inspection engineering, implementation of electronic profi t margin was largely impacted by price Report (EIR) from USFDA indicating batch records to eliminate manual errors, erosion in the US, which was partly off set successful closure of the audit of and focus on robustness of processes. by benefi t from new product launches this facility. We are fully committed to produce safe and with higher margins, cost optimization API facility at Srikakulam: In February effi cacious products for our patients. initiatives taken by us, and the benefi t 2018, the USFDA issued an EIR for this from depreciation of rupee against the facility indicating that its inspection FINANCIALS US dollar. For the PSAI business, the gross status remains unchanged and we Table 1 gives the abridged IFRS profi t margin was 25.4%. PSAI’s gross profi t were asked to carry out certain consolidated segment wise revenue margin rose on account of an increase in detailed investigations and analyses. performance for FY2019 compared to sales of products with higher margins and In response, we submitted the results FY2018. Table 2 gives the consolidated from depreciation of the rupee against of such investigations in October 2018. income statement. the US dollar. As part of the review of the response by the USFDA, certain additional follow SELLING, GENERAL AND on queries were received by us. We ADMINISTRATIVE EXPENSES (SG&A) responded to all queries in January SG&A expenses increased by 4% to 2019, to the USFDA. In February ` 48,890 million in FY2019. This was largely 2019, USFDA requested answers attributable to increase in personnel costs, to three follow-up questions to us primarily on account of annual increments, and we responded in March 2019. freight outward costs due to increase Based on the subsequent discussion in volumes, and increases pertaining to with USFDA, a reinspection will be depreciation of rupee. The increase was conducted for the site. ₹153,851 mn off set by signifi cant eff orts and continued Oncology formulation facility at focus on cost optimization. SG&A accounted Revenue in FY2019 Duvvada: In June 2018, we requested for 31.8% of revenue in FY2019 versus 33% the USFDA to schedule a reinspection in FY2018 - or an improvement of 120 basis of the oncology formulation points over the previous year. manufacturing facility at Duvvada. In October 2018, the reinspection was

Building a winning future 43 Dr. Reddy’s Laboratories Limited

R&D EXPENSES The team collaborates with the compliance, R&D expenses for FY2019 were ` 15,607 internal audit and other assurance teams to million, or 10.1% of revenue, versus identify and mitigate risks of business units, 12.9% in FY2018. The absolute and including risk relating to cyber security. proportional decrease in R&D spends were in line with the productivity improvement Risks are aggregated at the unit, function measures undertaken by us including ₹18,795 mn and organization levels and are categorized cost optimization, productivity gains and Net profi t in FY2019 by risk groups. Our response framework prioritization of projects, which have categorizes these risks into (i) preventable, been executed in a manner that does (ii) strategic and (iii) external risks. The not impinge on building the pipeline fi nance, investment and risk management of complex generics, biosimilars and (FIRM) council is a management level diff erentiated products. committee that helps the ERM function to prioritize organization-wide risks and NET FINANCE INCOME Investing activities net outfl ow amounting steer mitigation eff orts in line with our risk The net fi nance income was ` 1,117 to ` 7,727 million in FY2019 includes net capacity and appetite. million in FY2019 versus ` 2,080 million investment in property, plant, equipment in FY2018. The reduction is primarily and intangibles to build capacity and Mitigation work carried out by the ERM team on account of higher realized gains on capabilities for future business growth. is periodically reviewed, and the progress redemption of mutual funds in FY2018. Cash outfl ow from fi nancing activities was on key risks is discussed with the FIRM ` 21,326 million. Closing cash and cash council, our senior management, as well as INCOME TAX equivalents as on 31 March 2019 was at the risk management committee of the For FY2019, income tax expense was ` 2,228 million. board of directors. These include (i) updates ` 3,648 million, with an eff ective tax rate on the progress of mitigation of key risks of 16.3%. This tax outgo was 19.6% lower DEBT-EQUITY and (ii) specifi c risk-related initiatives carried than FY2018 (` 4,535 million and an In FY2019, short-term and long-term out during the year. eff ective tax rate of 31.6%). The FY2018 borrowings, including the current and rate was higher due to a one-time charge non-current portion, decreased by ` 12,333 During FY2019, risk mitigation eff orts were taken during transition to a new tax million. As on 31 March 2019 our debt focused towards patent infringement risk, regime in the US (Tax Cuts and Jobs Act to equity ratio is 0.27 as against 31 quality and regulatory risk, geo-political of 2017). Adjusted for it, the eff ective tax March 2018 of 0.40. The net debt to equity risk, cyber security risk, assessing and rate for FY2018 was 22.5%. In FY2019, position was at 0.09 versus 0.24 last year. strengthening data privacy related posture, the eff ective tax rate was lower due to Table 5 gives the data. and reviews of other operating and allowance of a claim of deduction of an compliance risks. item which was previously disallowed for ENTERPRISE RISK MANAGEMENT tax purpose. (ERM) HUMAN RESOURCES (HR) Our ERM function operates with the In the previous year, we embarked on NET PROFIT following objectives: an organization transformation journey Net profi t increased by 92% to ` 18,795 Proactively identify and highlight risks to taking up several new initiatives directed million in FY2019. This represents a PAT relevant stakeholders; towards execution excellence and growth. margin of 12.2% of revenues versus 6.9% Facilitate discussions around risk This involved bringing in best in class in FY2018. prioritization and mitigation; talent in key roles, defi ning cross functional Provide a framework to assess risk processes and building the right culture for LIQUIDITY AND CAPITAL RESOURCES capacity and appetite; the growth ahead. As on 31 March 2019, The data are given in Tables 3 and 4. Develop systems to warn when the we had 21,966 employees. Cash generated from operating activities appetite is being breached; and in FY2019 was ` 28,704 million. Provide an analysis of residual risk. We began FY2019 by focusing on redesigning and optimizing our organization The ERM team connects with our business structure at senior levels resulting in units and functions, which are the primary higher synergy, agility and effi ciency in sources for risk identifi cation. It also teams. At the same time, we successfully We began FY2019 by monitors external trends on liabilities and implemented comprehensive intervention focusing on redesigning risks reported by peers in the industry. in one of our manufacturing units to and optimizing our ensure higher regulatory readiness. organization structure Our ERM function focuses on identifi cation This involved building competence in at senior levels resulting of key business, and operational and our teams, simplifying work processes in higher synergy, agility strategic risks. These are carried out and enhancing our quality processes. and effi ciency in teams. through structured interviews, on-call It is now being extended across all our discussions, or review of incidents. manufacturing plants.

44 Company Overview Statutory Reports Financial Statements Annual Report 2018-19

OUTLOOK the International Accounting Standards Despite challenges that are innate to Board, and accounting principles generally the industry in which we are in, FY2019 accepted in India and therefore, include We continue to focus on has been a satisfactory year in terms amounts based on informed judgments and strengthening our talent of improvement of performance in estimates. The management also accepts processes through cadre various domains. responsibility for the preparation of other and capability building fi nancial information that is included in interventions. The challenging pricing environment in this report. This write up includes some the US continued in FY2019 which led forward-looking statements, within the to signifi cant price erosion; and further meaning of Section 27A of the US Securities delay in some of the key new launches Act of 1933, as amended and Section 21E in this market impacted the performance. of the US Securities Exchange Act of 1934, However, the strong performance by as amended. branded markets and the PSAI business In line with creating a high-performance have helped to close the year on a The management has based these culture, we revamped our performance satisfactory note. forward-looking statements on its current management process. For senior leaders expectations and projections about in the organization, the new system We were able to address the USFDA future events. Such statements involve expands the scope of evaluation to include concerns on the formulation facility in known and unknown risks, uncertainties assessment of necessary leadership Duvvada as well as our API facility at and other factors that may cause actual behaviors based on a 360° feedback. Miryalaguda and have been working results to differ materially. These factors It promotes higher transparency and towards a favorable resolution for our include, but are not limited to, changes ownership of shared outcomes. In addition API plant in Srikakulam - which should in local and global economic conditions, to this, for our manufacturing and provide necessary impetus for the next changes in government regulations, quality control frontline employees, the fi nancial year. ability to successfully implement the performance process also helps reward strategy, manufacturing or quality team outcomes. During FY2019, we made signifi cant control outcomes, ability to achieve inroads towards a leaner business model expected results from investments in Signifi cant eff orts were made to strengthen and, thus, leveraged higher productivity our product pipeline, change in market our leadership and hire benchmark talent. and effi ciencies across several functions. dynamics, technological change, These have helped in bringing in a fresh The momentum is expected to continue currency fluctuations and exposure to perspective and renewed energy to the with increased rigor in FY2020. various market risks. By their nature, organization. In our commercial businesses these expectations and projections are of Russia, North America and India, we have We shall attempt to further strengthen only estimates and could be materially strengthened our local leadership presence our presence in our six chosen spaces different from actual results in the future. through these eff orts. (United States, India, Russia, China, Global Readers are cautioned not to place Hospitals including Biosimilars, and the undue reliance on these forward-looking We continue to focus on strengthening Global API business) to drive next level statements, which reflect management’s our talent processes through cadre and of growth for us. Our target is to attain analysis and assumptions only as of the capability building interventions. We have self-sustainability for each of our business. date hereof. In addition, readers should completed one year of the Young Leaders carefully review the other information Development Program which has already Despite multiple headwinds being faced in this annual report and in our periodic started creating impact. We are now by the overall industry, we are cautiously reports and other documents filed with all replicating the same model to create cadres optimistic of improving our performance the stock exchanges. in sales and manufacturing. in FY2020 by calibrating our levers which would suit the business environment better Diversity and inclusion remain important on and, thus, guide us to better performance the organizational agenda. For the second for the year ahead. time, we have been featured in the 2019 Bloomberg Gender Equality Index for our commitment to gender equality. We have CAUTIONARY STATEMENT also been strengthening our eff orts Our management has prepared and is During FY2019, we towards actively promoting employment responsible for the fi nancial statements made signifi cant inroads for specially-abled individuals. Dr. Reddy’s that appear in this report. These are in towards a leaner business Foundation was recognized by The National conformity with International Financial model and, thus, leveraged Centre for Promotion of Employment for Reporting Standards (IFRS), as issued by higher productivity Disabled People (NCPEDP)-Mindtree Helen and effi ciencies across Keller National Disability Award. several functions.

Building a winning future 45 Dr. Reddy’s Laboratories Limited

FIVE YEARS AT A GLANCE

(₹ MILLION) YEAR ENDING MARCH 31 2019 2018 2017 2016 2015 INCOME STATEMENT DATA Revenues 153,851 142,028 140,809 154,708 148,189 Cost of revenues 70,421 65,724 62,453 62,427 62,786 Gross profi t 83,430 76,304 78,356 92,281 85,403 as a % of revenues 54.2 53.7 55.6 59.6 57.6 Operating Expenses: Selling, general and administrative expenses* 48,890 46,910 46,372 45,702 42,585 Research and development expenses 15,607 18,265 19,551 17,834 17,449 Other Operating (income) / expenses, net (1,955) (788) (1,065) (874) (917) Total operating expenses 62,542 64,387 64,858 62,662 59,117 Operating income 20,888 11,917 13,498 29,619 26,286 as a % of revenues 13.6 8.4 9.6 19.1 17.7 Finance Costs, net: Finance income 2,280 2,897 1,587 2,251 2,774 Finance expenses (1,163) (817) (781) (4,959) (1,092) Finance (expense)/income, net 1,117 2,080 806 (2,708) 1,682 Share of profi t of equity accounted investees, net of income tax 438 344 349 229 195 Profi t before income tax 22,443 14,341 14,653 27,140 28,163 Income tax benefi t/(expense) (3,648) (4,535) (2,614) (7,127) (5,984) Profi t for the year 18,795 9,806 12,039 20,013 22,179 as a % of revenues 12.2 6.9 8.5 12.9 15.0 Earnings per share (₹) Basic 113 59 72 117 130 Diluted 113 59 72 117 130 Dividend declared per share (₹) 20 20 20 20 20 BALANCE SHEET DATA Cash and cash equivalents, net of bank overdraft 2,228 2,542 3,779 4,921 5,394 Operating working capital** 58,895 53,655 53,178 58,584 55,624 Total assets 225,427 225,604 219,821 207,650 194,762 Total long-term debt, excluding current portion 22,000 25,089 5,449 10,685 14,307 Total stockholders' equity 140,197 126,460 124,044 128,336 111,302 ADDITIONAL DATA Net cash provided by / (used in): Operating activities 28,704 18,029 21,513 41,247 25,033 Investing activities (7,727) (14,883) (18,471) (20,423) (22,904) Financing activities (21,326) (4,440) (3,692) (17,001) (4,118) Eff ect of exchange rate changes on cash 35 57 (492) (4,296) (1,068) Expenditure on property, plant and equipment & Intangibles (8,376) (11,043) (40,984) (14,875) (15,327) * Includes impairment of goodwill and other intangibles and reversal of impairment. Figures are restated for previous years ** Operating working capital = Trade receivables + inventories - Trade payables

46 Company Overview Statutory Reports Financial Statements Annual Report 2018-19

KEY FINANCIAL RATIOS

YEAR ENDING MARCH 31 2019 2018 2017 2016 2015 PROFITABILITY RATIOS EBITDA margin (%)*@ 22% 17% 18% 23% 24% Gross Margin (%) 54% 54% 56% 60% 58% - Global Generics 59% 59% 62% 66% 65% - PSAI 25% 20% 21% 22% 22% Adjusted PAT# margin (%) 12% 7% 9% 13% 15% Net Proﬁ t Margin (%)*@ 12.2 6.9 8.5 12.9 15 Return on Net Worth (%)*@ 13 8101620 ASSET PRODUCTIVITY RATIOS Fixed Asset Turnover 2.7 2.5 2.5 3.0 3.2 Total Assets Turnover 0.7 0.6 0.7 0.8 0.8 WORKING CAPITAL RATIOS Working Capital Days 180 194 204 193 198 Inventory Days* 163 154 160 149 145 Debtors Days* 90 102 96 99 95 Creditor Days 73 62 51 55 42 GEARING RATIOS Net Debt/Equity*@@ 0.09 0.24 0.25 (0.05) 0.03 Interest Coverage Ratio* 18.3 15 17.7 6 24.3 Current Ratio* 1.9 1.6 1.2 1.9 1.9 VALUATION RATIOS Earnings per share (₹) 113.1 59.0 72.1 117.0 129.7 Book Value per share (₹) 844 763 743 750 651 Dividend Payout 18% 34% 28% 17% 15% Trailing Price/Earnings Ratio 24.6 35.3 36.5 25.9 26.9 (1) Fixed Asset Turnover: Net Sales/Average Net Fixed Assets (Property, plant and equipment) (2) Total Asset Turnover: Net Sales/Average Total Assets (3) Working Capital Days: Inventory Days + Receivable Days - Payable Days (4) Inventory Days: (Average of closing Inventory - as on end of September and March/(Cost of Revenue during last six months) * 182 (5) Receivable Days: outstanding receivables netted-off with the daily average sales; starting from the latest month (6) Payable Days: (Average of closing Payables - as on end of December and March)/(Material cost during last three months) * 90 (7) Book Value per share: Equity/Outstanding equity shares (8) Dividend Payout: DPS/EPS (9) Trailing price: Closing share price on the last working day of March

# PAT adjusted for non-cash impairment charge and other non-recurring costs. * Key fi nancial ratios in terms of Schedule V(B)(1)(h) of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015. @ Profi t margins improved signifi cantly over previous year on account of increase in revenues from India and Emerging markets, income from sale of Proprietary Products' Derma brands. Margins were further aided by the cost optimization and productivity improvement measures undertaken by the company. @@ The decrease in Net Debt Equity ratio over previous year was primarily due to higher cash infl ows from operating activities, resulting in a decrease in borrowings.

Building a winning future 47 Dr. Reddy’s Laboratories Limited

CORPORATE GOVERNANCE

Dr. Reddy’s Laboratories Limited Governance Guidelines of the NYSE Listed TERM OF BOARD MEMBERSHIP (‘Dr. Reddy’s’ or ‘the company’) believes Company Manual. Their detailed profi les are The board, on recommendations of the that timely disclosures, transparent given in this annual report. nomination, governance and compensation accounting policies coupled with a strong committee (NGCC), considers the and independent board go a long way in The directors have expertise in the fi elds appointment and reappointment of maintaining good corporate governance, of strategy, management and governance, directors. preserving shareholders’ trust and maximizing fi nance, operations, science, technology, long-term corporate value. The company’s human resource development and Section 149(10) of the Companies Act, corporate governance framework is based on economics, as under. 2013, provides that an independent director the following main principles: shall hold offi ce up to five consecutive years Appropriate composition and size of the Mr. K Satish Reddy and Mr. G V Prasad on the board of a company and shall be board, with each director bringing in key (whole time promoter directors); Dr. Bruce eligible for reappointment on passing of expertise in diff erent areas. L A Carter and Mr. Allan Oberman (science, a special resolution by the shareholders. Proactive fl ow of accurate information technology, operations and industry Moreover, independent directors cannot to members of the board and board experts); Mr. Sridar Iyengar, Mr. Bharat retire by rotation. Accordingly, all our committees to enable eff ective N Doshi and Dr. Omkar Goswami independent directors were appointed as discharge of fi duciary duties. (economics and fi nancial experts); such for terms ranging from one to fi ve Ethical business conduct by the board, Mr. Anupam Puri, Mr. Prasad R Menon years at the 30th annual general meeting management and employees. and Mr. Leo Puri (strategy, human (AGM) of the company. Well-developed systems of internal resources, management and governance); controls, risk management and and Ms. Kalpana Morparia and The terms of Mr. Sridar Iyengar fi nancial reporting. Ms. Shikha Sharma (CEO experience in (DIN: 00278512) and Ms. Kalpana Morparia Protection and facilitation of large Indian public companies). Such (DIN: 00046081) independent directors, shareholders’ rights. expertise enables the board to steer the end at the forthcoming 35th AGM. Adequate, timely and accurate company in the right direction. Considering their performance evaluation disclosure of all material operational and reports, the board has recommended fi nancial information to stakeholders. The board provides leadership, strategic the reappointment of Mr. Iyengar and guidance, objective and independent Ms. Morparia, as independent directors In India, the Securities and Exchange views to the company’s management while under Section 149 of Companies Act, 2013 Board of India (SEBI) regulates corporate discharging its fi duciary responsibilities, for a second term of four and fi ve years, governance for listed companies through thereby ensuring that the management respectively. SEBI (Listing Obligations and Disclosure adheres to high standards of ethics, Requirements) Regulations, 2015 (Listing transparency and disclosure. It regularly Further, Mr. Sridar Iyengar (aged 71 Regulations). We are in full compliance reviews the company’s governance, risk years) and Ms. Kalpana Morparia (aged with all the applicable provisions of SEBI’s and compliance framework, business plans, 70 years) will attain the age of seventy corporate governance norms. We are also in and organization structure to align with the fi ve years during their second term of compliance with the appropriate corporate highest global standards. four and fi ve years respectively. Hence in governance standards of the New York Stock terms of Regulation 17(1A) of the Listing Exchange Inc. (NYSE). Each director informs the company on an Regulations approval of shareholders is also annual basis about the board and board sought for continuation of Mr. Iyengar and This Chapter, together with the information committee positions she/he occupies in Ms. Morparia's directorship even after given in the Chapters on Management other companies, and notifi es it of any attaining such age. Discussion and Analysis and Additional changes regarding their directorships Shareholders’ Information, constitute and committee positions. In addition, the During FY2019, the shareholders of the our report on Corporate Governance for independent directors provide an annual company approved reappointment of 2018-19 (or FY2019). confi rmation that they meet the criteria of Mr. Anupam Puri (DIN: 00209113) and independence as defi ned under Indian Dr. Bruce L A Carter (DIN: 02331779), BOARD OF DIRECTORS laws. The board after assessment of such independent directors, for a second term disclosures, declarations and confi rmations, of one and three year(s) respectively, under COMPOSITION opines that all the independent directors Section 149(10) of the Companies Act, 2013. As on 31 March 2019, our board had fulfi l the conditions specifi ed under Listing 12 directors, comprising (i) two executive Regulations and are independent of the Section 152 of the Companies Act, directors, including the chairman of the management. 2013, states that one-third of the board board, and (ii) 10 independent directors as members other than independent defi ned under the Companies Act, 2013, Table 1 gives the composition of our board, directors who are subject to retire by the Listing Regulations and the Corporate with all relevant details. rotation, shall do so every year and be

48 Company Overview Statutory Reports Financial Statements Annual Report 2018-19

eligible for reappointment, if approved term of fi ve years and continuation of Mr. Anupam Puri completes his second by the shareholders. Mr. G V Prasad, directorship even after attaining 75 term as an independent director. Dr. Omkar (DIN:00057433) retires by rotation at years of age. Goswami retires from the board of the the forthcoming AGM and, being eligible, iv. Appointment of Mr. Leo Puri as an company as independent director and seeks reappointment. independent director for a term of fi ve does not seek reappointment. The board years with eff ect from 25 October 2018. wishes them well, and places on record its Additionally, Mr. Leo Puri (DIN: 01764813), v. Appointment of Ms. Shikha Sharma appreciation for their work over the long Ms. Shikha Sharma (DIN: 00043265) and as an independent director for a period of time that they have served as Mr. Allan Oberman (DIN: 08393837) were term of fi ve years with eff ect from directors of the company. appointed as additional directors of the 31 January 2019. company, categorized as independent vi. Appointment of Mr. Allan Oberman as an SELECTION AND APPOINTMENT OF with eff ect from 25 October 2018, independent director for a term of fi ve NEW DIRECTORS 31 January 2019 and 26 March 2019 years with eff ect from 26 March 2019. Recommending any new member on the respectively. Therefore, at the forthcoming board is the responsibility of the NGCC of the AGM, approval of shareholders is Mr. Hans Peter Hasler resigned from the board, which consists entirely of independent being sought for: board on 14 June 2018 as an independent directors. Given the existing composition of i. Reappointment of Mr. G V Prasad, who director. Having served as an independent the board, the tenure as well as the years retires by rotation and, being eligible, director on the company’s board since left of the existing members to serve on off ers himself for the reappointment. June 2016, Mr. Hasler decided to actively the board, and the need for new domain ii. Reappointment of Mr. Sridar Iyengar as engage in a business opportunity which expertise are reviewed by this committee. an independent director for a second could pose a potential confl ict of interest When such a need becomes apparent, the term of four years and continuation of vis-à-vis his position as a director of the committee reviews potential candidates in directorship even after attaining 75 company. In order to avoid this, he tendered terms of their expertise, attributes, personal years of age. his resignation. The board noted and professional backgrounds and their iii. Reappointment of Ms. Kalpana Morparia Mr. Hasler’s resignation at its meeting held ability to attend meetings in India. It then as an independent director for a second on 26 July 2018. places the details of shortlisted candidates to

TABLE 1 COMPOSITION OF OUR BOARD AND THEIR OTHER DIRECTORSHIPS AS ON 31 MARCH 2019 (2) (1) (2) ORSHIPS UNDER SECTION 165 OF THE COMPANIES 2013 ACT, DIRECT PUBLIC PRIVATE NAME POSITION OTHER OTHER DIRECTORSHIPS COMMITTEE MEMBERSHIPS COMMITTEE CHAIRMANSHIPS RELATIONSHIP WITH RELATIONSHIP DIRECTORS OTHER OF JOINING DATE COMPANIES COMPANIES Mr. K Satish Reddy Chairman Brother-in-law of 18 January 1993 97121- Mr. G V Prasad Mr. G V Prasad Co-Chairman, Brother-in-law 8 April 1986 8541- managing director of Mr. K Satish and CEO Reddy Dr. Omkar Goswami Independent director None 30 October 2000 8 1 -7- Mr. Anupam Puri Independent director None 4 June 2002 3-11- Ms. Kalpana Morparia Independent director None 5 June 2007 2 1 1-1 Dr. Bruce L A Carter Independent director None 21 July 2008 2-41- Mr. Sridar Iyengar Independent director None 22 August 2011 3 1 412 Mr. Bharat N Doshi Independent director None 11 May 2016 5 - 321 Mr. Prasad R Menon Independent director None 30 October 2017 2 - 2-1 Mr. Leo Puri Independent director None 25 October 2018 4--21 Ms. Shikha Sharma Independent director None 31 January 2019 1 - -1- Mr. Allan Oberman Independent director None 26 March 2019 1 - 1 - - (1) Other directorships are those, which are not covered under Section 165 of the Companies Act, 2013. (2) Membership/chairmanship in audit and stakeholders' relationship committees of all public limited companies, whether listed or not, including the company are considered. Membership/chairmanship of foreign companies, private limited companies and those under Section 8 of the Companies Act, 2013 have been excluded. Membership/chairmanship of our nomination, governance and compensation committee; science, technology and operations committee; corporate social responsibility committee; banking and authorizations committee and risk management committee are also excluded. (3) None of the independent directors serves as an independent director in more than seven listed companies.

Building a winning future 49 Dr. Reddy’s Laboratories Limited

the board for its consideration. If the board the working of its committees and peer MEETINGS OF THE BOARD approves, the person is appointed as an evaluation of each director internally. The company plans and prepares additional director, subject to the approval of Prior to that, on two such occasions, an the schedule of the board and board shareholders at the company’s next general independent expert was engaged to committee meetings eighteen to twenty meeting. conduct the evaluation process. four months in advance. The schedule of meetings and their agenda are fi nalized FAMILIARIZATION PROCESS FOR During the year, the NGCC discussed and in consultation with the chairman of the INDEPENDENT DIRECTORS decided to again engage an independent board, the lead independent director and To familiarize a new independent director with expert to perform the evaluation and committee chairpersons. Agendas are the company, an information kit, inter alia, eff ectiveness process of the board, circulated in advance with appropriate containing documents about the company, its committees and individual directors presentations, detailed notes, supporting such as its annual reports, sustainability for FY2019. documents and executive summaries. reports, investor presentations, recent press releases, research reports, code of business For the purpose of this annual evaluation, Under Indian laws, the board of directors conduct and ethics (COBE), memorandum each director completes a questionnaire that must meet at least four times a year, with and articles of association and a brief on involves peer evaluation and feedback on a maximum gap of 120 days between company's board practices is provided. processes of the board and its committees. two board meetings. Our board met fi ve The new independent director individually The independent expert also meets the times during the fi nancial year under meets with board members and senior directors separately. The contribution and review on: 22 May 2018, 26 July 2018, management. Visits to plants are organized impact of individual members are evaluated 26 October 2018, 1 February 2019 and for the director to understand the company’s on a number of parameters such as level of 26 March 2019. Details of directors’ operations. engagement, independence of judgment, attendance at board meetings and the confl icts resolution, contributions to enhance AGM are given in Table 3. We believe that the board should be the board’s overall eff ectiveness, etc. Peer continuously empowered with knowledge of ratings on certain parameters, positive Our board and committee meetings typically latest developments aff ecting the company attributes and improvement areas for each comprise structured two-day sessions. and the industry. Apart from regular director are provided to them on a confi dential presentations on the company’s business basis. INFORMATION GIVEN TO THE BOARD strategies and associated risks, expositions Among others, the company provides the are made on various topics covering the The committees are evaluated on various following information to the board and/or pharmaceutical industry. Updates on parameters such as eff ective discharge of its committees: relevant statutory changes and judicial their roles, responsibilities and advice given Annual operating plans and budgets, pronouncements around industry-related to the board for discharging its fi duciary capital budgets and other updates; laws are regularly circulated to the directors. responsibilities, including adequate and Quarterly, half-yearly and annual They also visit the company’s manufacturing periodical updates to the board on the fi nancial results of the company and research locations. Each director has committees’ functioning. and its operating divisions or complete and unfettered access to any of business segments; the company’s information and full freedom DIRECTORS’ SHAREHOLDING IN Detailed presentations on the progress to interact with senior management. THE COMPANY in research and development (R&D) and Table 2 gives details of shares/ADRs held new drug discoveries; Details of the familiarization programs by the directors as on 31 March 2019. for independent directors are available on the company’s website www.drreddys.com/media/904446/ familiarization-programs-2019.pdf TABLE 2 SHARES/ADRs HELD BY DIRECTORS AS ON 31 MARCH 2019 NAME NO. OF SHARES/ADRs HELD LETTER OF APPOINTMENT Mr. K Satish Reddy(1) 898,432 Upon their appointment, independent Mr. G V Prasad(1) 1,117,940 directors are given a formal appointment Dr. Omkar Goswami 22,800 letter containing, inter alia, the term of Mr. Anupam Puri (ADRs) 13,500 appointment, roles, function, duties and Ms. Kalpana Morparia 10,800 responsibilities, the company’s code of Dr. Bruce L A Carter (ADRs) 7,800 conduct, disclosures and confi dentiality. Mr. Sridar Iyengar - For such terms and conditions, see: Mr. Bharat N Doshi 1,000 www.drreddys.com/investor/governance/ Mr. Prasad R Menon - policies-and-documents/terms-condition Mr. Leo Puri - -directors.html Ms. Shikha Sharma - Mr. Allan Oberman - BOARD EVALUATION (1) Since FY2015, the board carried out an APS Trust owns 83.11% of Dr. Reddy’s Holdings Limited, which in turn owns 41,325,300 (24.88%) shares of Dr. Reddy’s Laboratories Limited. Mr. G V Prasad, Mr. K Satish Reddy, Mrs. G Anuradha, Mrs. Deepti Reddy and annual self-evaluation of its performance, their bloodline descendants are the benefi ciaries of APS Trust.

50 Company Overview Statutory Reports Financial Statements Annual Report 2018-19

Minutes of meetings of the board, audit Signifi cant effl uent or pollution MEETINGS OF INDEPENDENT committee and other committees of problems, if any; DIRECTORS the board; Material default in fi nancial obligations During FY2019, our independent directors Information on recruitment and to and by the company or substantial met fi ve times in executive sessions remuneration of key executives below non-payment for goods sold by the without the presence of executive directors the board level including chief fi nancial company, if any; and other members of management. offi cer and the company secretary; Signifi cant labor problems and their The company is ready to facilitate more Signifi cant regulatory matters proposed solutions, if any; such sessions as and when required by concerning Indian or foreign Signifi cant development in the human the independent directors. During these regulatory authorities; resources and industrial relations fronts; meetings, the independent directors Issues which involves possible public or Quarterly details of foreign exchange reviewed the performance of the company product liability claims of a substantial exposure and the steps taken by and its senior management, that of the nature, if any; management to limit the risks of adverse chairman and the board, corporate strategy, Risk analysis of various products, exchange rate movement; risks, competition, succession planning for markets and businesses; Non-compliance of any regulatory or the board and senior management and the Detailed analysis of potential acquisition statutory nature or listing requirements information given to the board. targets and possible divestments; as well as shareholders’ services such Details of any joint venture or as non-payment of dividend and delays ANNUAL BOARD RETREAT collaboration agreements; in share transfer, if any; During FY2019, the annual board retreat Transactions that involve substantial Subsidiary companies’ minutes, fi nancial was organized at Princeton, USA, on payment towards, or impairment statements, signifi cant transactions and 22-24 August 2018, where the board of goodwill, brand equity or investments; and conducted a detailed strategy review of intellectual property; Signifi cant transactions and the company’s business segments and Signifi cant sale of investments, arrangements. discussed various governance related subsidiaries, assets which are not in the matters. normal course of business; POST-MEETING FOLLOW-UP Contracts/arrangements in which MECHANISM DIRECTORS’ REMUNERATION director(s) are interested; Important decisions taken by the board and We have a policy for the remuneration of Materially important show cause, its committees are promptly communicated directors, key managerial personnel (KMP), demand, prosecution and penalty to the concerned departments or divisions. senior management personnel (SMP) and notices, if any; Action taken/status reports on decisions of other employees. The remuneration policy Fatal or serious accidents or dangerous the previous meeting(s) are followed-up and is enclosed as Annexure A to this Chapter. occurrences, if any; placed at the next meeting for information It lays down principles and parameters to and further recommended actions, if any. ensure that remunerations are competitive, reasonable, and in line with corporate and individual performance. DIRECTORS’ ATTENDANCE AT BOARD MEETINGS AND TABLE 3 THE AGM, FY2019 Executive directors are appointed by MEETINGS HELD ATTENDANCE IN ATTENDANCE AT shareholders’ resolution for a period of NAME IN DIRECTOR’S LAST AGM ON THE MEETINGS TENURE 27 JULY 2018 fi ve years. No severance fee is payable Mr. K Satish Reddy 5 5 Present to them. Except the commission payable, Mr. G V Prasad 5 5 Present all other components of remuneration to Dr. Omkar Goswami 5 5 Present the executive directors are fi xed in line with the company’s policies. Their annual Mr. Anupam Puri 54(1) Present remuneration, including commission based Ms. Kalpana Morparia# 5 5 Absent on standalone net profi ts of the company, Dr. Bruce L A Carter 5 5 Present is recommended by the NGCC to the board Mr. Sridar Iyengar 54(1) Present for its consideration. The committee also Mr. Bharat N Doshi 5 5 Present takes into account corporate performance Mr. Hans Peter Hasler* 10(2) Not Applicable in a given year and the key performance Mr. Prasad R Menon 5 5 Present indicators (KPIs). The remuneration are Mr. Leo Puri** 3 3 Not Applicable within the limits approved by shareholders. Ms. Shikha Sharma*** 2 2 Not Applicable Perquisites and retirement benefi ts are (1) Mr. Allan Oberman**** 1 0 Not Applicable paid in accordance with the company’s (1) Was given leave of absence on request for one meeting. He participated in such meeting through compensation policies, as applicable to all tele-conference. employees. (2) Was given leave of absence on request for one meeting. * Resigned on 14 June 2018 as an independent director. ** Appointed with eff ect from 25 October 2018 as an independent director. Independent directors are entitled to *** Appointed with eff ect from 31 January 2019 as an independent director. receive sitting fees, commission based on **** Appointed with eff ect from 26 March 2019 as an independent director. the standalone net profi ts of the company # Was not able to attend the meeting due to personal exigency.

Building a winning future 51 Dr. Reddy’s Laboratories Limited

and reimbursement of any expenses for Dr. Omkar Goswami: The risk audit/limited review report, related attending meetings of the board and its management committee, fi nancial risk disclosures and fi ling requirements; committees. Such remuneration, including management, subsidiary fi nances and Review the adequacy of internal commission payable, is in conformity with compliance with Section 404 of the controls in the company, including the the provisions of the Companies Act, 2013, US Sarbanes-Oxley Act, 2002; and plan, scope and performance of the and has been considered and approved Mr. Bharat N Doshi: The corporate social internal audit function; by the board and the shareholders. responsibility committee. Discuss with management the The company, in compliance with Section company’s major policies with respect to 197 of the Companies Act, 2013, and the COMMITTEES OF THE BOARD risk assessment and risk management; Listing Regulations, has not granted any We have seven board-level Committees, Hold discussions with statutory auditors stock options to independent directors since whose details are given below: on the nature, scope and process FY2013. Remuneration paid or payable to of audits and any views that they the directors for FY2019 is given in Table 4. AUDIT COMMITTEE have about the fi nancial control and The management is responsible for the reporting processes; INDEPENDENT DIRECTORS company’s internal controls and the fi nancial Ensure compliance with accounting Independent directors of the company head reporting process while the statutory standards and with listing requirements the following governance and/or board auditors are responsible for performing with respect to the fi nancial statements; committee functions: independent audits of the company’s Recommend the appointment and Mr. Anupam Puri: Governance, corporate fi nancial statements in accordance with removal of external auditors and strategy, lead independent director generally accepted auditing practices and their remuneration; and nomination, governance and for issuing reports based on such audits. Recommend the appointment of compensation committee; The board of directors has entrusted the cost auditors; Dr. Bruce L A Carter: The science, audit committee with the responsibility to Review the independence of auditors; technology and operations committee; supervise these processes and ensure Ensure that adequate safeguards have Mr. Sridar Iyengar: The audit committee, accurate and timely disclosures that been taken for legal compliance for the and all fi nancial and audit matters that maintain the transparency, integrity and company and its subsidiaries; fall under the remit of the committee quality of fi nancial control and reporting. Review the fi nancial statements, in plus being the fi nancial expert and particular, investments made by all the ombudsperson for the company’s The primary functions of the audit subsidiary companies; whistle-blower policy; committee are to: Review and approval of related Ms. Kalpana Morparia: The stakeholders’ Supervise the fi nancial reporting process; party transactions; relationship committee; Review the quarterly results and annual Review the functioning of whistle-blower fi nancial statements/results before mechanism; placing them to the board along with

TABLE 4 REMUNERATION PAID OR PAYABLE TO THE DIRECTORS FOR FY2019 (` ‘000’) NAME SALARIES PERQUISITES(1) COMMISSION(2) TOTAL Mr. K Satish Reddy 18,348 4,240 63,000 85,588 Mr. G V Prasad 18,348 5,522 100,000 123,870 Dr. Omkar Goswami - - 9,682 9,682 Mr. Anupam Puri - - 11,481 11,481 Ms. Kalpana Morparia - - 9,682 9,682 Dr. Bruce L A Carter - - 10,201 10,201 Mr. Sridar Iyengar - - 10,443 10,443 Mr. Bharat N Doshi - - 11,066 11,066 Mr. Prasad R Menon - - 9,337 9,337 Mr. Leo Puri(3) - - 4,841 4,841 Ms. Shikha Sharma(4) - - 2,594 2,594 Mr. Allan Oberman(5) - - 865 865 (1) Perquisites include medical reimbursement for self and family according to the rules of the company, leave travel assistance, personal accident insurance, leave encashment, long service award, company’s vehicle with driver for offi cial use, telephone at residence and mobile phone, contribution to provident fund and superannuation scheme. All these benefi ts are fi xed in nature. (2) Payment of commission is variable, and based on the percentage of net profi t calculated according to Section 198 of the Companies Act, 2013. The board of directors recommended for a fi xed commission of ` 6,224,400 (US$ 90,000) per independent director; a specifi c amount of ` 1,383,200 (US$ 20,000) to the chairman of the audit committee; ` 1,037,400 (US$ 15,000) to the chair of science, technology and operations committee; the nomination, governance and compensation committee; the risk management committee; the corporate social responsibility committee; and the stakeholders’ relationship committee; ` 691,600 (US$ 10,000) to the other members of the committees; ` 1,383,200 (US$ 20,000) to the lead independent director; ` 345,800 (US$ 5,000) variable fee per meeting based on the attendance at the board meeting to every independent director. Other than the above, a specifi c amount of ` 103,740 (US$ 1,500) per meeting was paid towards foreign travel of the directors. (3) Remuneration for part of the year, appointed with eff ect from 25 October 2018 as an independent director. (4) Remuneration for part of the year, appointed with eff ect from 31 January 2019 as an independent director. (5) Remuneration for part of the year, appointed with eff ect from 26 March 2019 as an independent director. (6) Apart from receiving the above remuneration, the non-executive directors do not have any pecuniary relationship or transaction with the company.

52 Company Overview Statutory Reports Financial Statements Annual Report 2018-19

Review the implementation of applicable related matters are discussed and items that development, deployment and provisions of the Sarbanes-Oxley need further face-to-face discussion at the behavior of management and other Act, 2002; audit committee meetings are identifi ed. employees. In this context, the Scrutinize inter-corporate loans committee also reviews the framework and investments; The internal and statutory auditors of and processes for motivating and Examine the valuation of undertakings the company discuss their fi ndings and rewarding performance at all levels or assets of the company, wherever updates, and submit their views directly of the organization, the resulting necessary; to the committee. Separate discussions compensation awards, and makes Evaluate internal fi nancial controls; and are held with the internal auditors appropriate proposals for board Review suspected fraud, if any, to focus on compliance issues and approval. In particular, it recommends all committed against the company. to conduct detailed reviews of the forms of compensation to be granted to processes and internal controls in the the executive directors, KMP and senior The audit committee entirely comprises of company. Permissible non-audit related management of the company. independent directors. All members are services undertaken by the statutory fi nancially literate and bring in expertise and independent auditors are also pre- The head of human resources (HR) makes in the fi elds of fi nance, economics, approved by the committee. periodic presentations to the committee on human resource development, strategy organization structure, talent management, and management. The committee The audit committee also reviews the leadership, succession, diversity, comprises Mr. Sridar Iyengar (chairman), performance and remuneration of the CIA performance appraisals, increments, Dr. Omkar Goswami, Mr. Bharat N Doshi and and chief compliance offi cer (CCO). performance bonus recommendations and Ms. Shikha Sharma. other HR matters. The report of the audit committee is The audit committee met fi ve times during enclosed as Exhibit 1 to this Chapter. The committee met fi ve times during the the year: on 21 May 2018, 26 July 2018, year: on 21 May 2018, 26 July 2018, 26 October 2018, 1 February 2019 NOMINATION, GOVERNANCE AND 21 September 2018, 25 October 2018 and 25 March 2019. It also met the key COMPENSATION COMMITTEE and 31 January 2019. The co-chairman, members of the fi nance team and internal The nomination, governance and managing director and CEO is a permanent audit team along with the chairman and the compensation committee (NGCC) also invitee to all such committee meetings. CFO to discuss matters relating to audit, entirely consists of independent directors. The head of HR offi ciates as the secretary assurance and accounting. During the Its primary functions are to: of the committee. Table 6 gives the year, the committee also met statutory Examine the structure, composition composition and attendance record of the auditors without the presence of the and functioning of the board, and committee, and the report of the committee management. In addition, the chairman of recommend changes, as necessary, is enclosed as Exhibit 2 to this Chapter. the committee and other members met to to improve the board’s eff ectiveness; review other processes, particularly the Formulate policies on the remuneration SCIENCE, TECHNOLOGY AND internal control mechanisms to prepare of directors, KMP and other senior OPERATIONS COMMITTEE for certifi cation under Section 404 of the employees and on board-level diversity; The science, technology and operations Sarbanes-Oxley Act, 2002, and subsidiary Formulate criteria for evaluation of committee of the board also entirely governance oversight. directors and the board; comprises independent directors. Assess the company’s policies and Its primary functions are to: The company is in compliance with the processes in key areas of corporate Advise the board and management on provisions of Regulation 18 of the Listing governance, other than those explicitly scientifi c, medical and technical matters Regulations, as amended, with respect to assigned to other board committees, and operations involving the company’s the time gap between any two successive with a view to ensure that Dr. Reddy’s is development and discovery programs audit committee meetings. Table 5 gives the at the forefront of good governance (generic and proprietary), including composition and attendance record of the practices; and major internal projects, business audit committee. Regularly examine ways to strengthen development opportunities, interaction organizational health, by improving with academic and other external The chairman, CFO and the chief internal hiring, retention, motivation, research organizations; auditor (CIA) are permanent invitees to all the audit committee meetings. TABLE 5 AUDIT COMMITTEE MEMBERSHIP AND ATTENDANCE IN FY2019 The company’s statutory auditors are also MEETINGS present. The company secretary offi ciates HELD IN THE ATTENDANCE AT COMMITTEE MEMBERS POSITION as the secretary of the committee. DIRECTOR’S THE MEETINGS TENURE (1) Audit committee meetings are preceded by Mr. Sridar Iyengar Chairman 54 pre-audit committee conference calls with Dr. Omkar Goswami Member 55 the members, the CFO, the internal audit Mr. Bharat N Doshi Member 55 and compliance teams, external auditors Ms. Shikha Sharma* Member 2 2 and other key fi nance personnel of the (1) Was given leave of absence on request for one meeting. He participated in such meeting through tele-conference. company. During these calls, major audit * Appointed as a member of the committee with eff ect from 31 January 2019.

Building a winning future 53 Dr. Reddy’s Laboratories Limited

Assist the board and management The chairman, COO, CIA and the CCO are The committee also periodically reviews to stay abreast of novel scientifi c permanent invitees to all risk management the company’s plans on stakeholders' and technologies developments and committee meetings. The CFO offi ciates engagement. innovations; anticipate emerging as the secretary of the committee. concepts and trends in therapeutic The committee met thrice during the year: The committee consists of four directors, research and development; and be on 21 May 2018, 25 October 2018, and including the two executive directors. assured that the company is making 31 January 2019. The chairperson is an independent director. well informed choices in committing The committee met four times during the its resources; Table 8 gives the composition and year: on 21 May 2018, 26 July 2018, Assist the board and management in attendance record of the committee, and 25 October 2018 and 31 January 2019. the creation of valuable intellectual the committee’s report is enclosed as Table 9 gives the composition and property (IP); Exhibit 4 to this Chapter. attendance record of the committee, Review the status of non-infringement and its report is enclosed as Exhibit 5 to patent challenges; and STAKEHOLDERS' RELATIONSHIP this Chapter. Assist the board and the management COMMITTEE in building and nurturing science in the The stakeholders’ relationship committee The company secretary offi ciates as the organization in line with the company’s is empowered to perform the functions secretary of the committee and is also business strategy. of the board relating to the handling of designated as the compliance offi cer in queries and grievances of security holders. terms of Listing Regulations. An analysis of The co-chairman, managing director and It primarily focuses on: investor queries and complaints received CEO and COO are permanent invitees to Investor complaints and their redressal; and responded/addressed during the all committee meetings. Offi cials heading Review of queries received from year is given in the Chapter on Additional IPDO, GMO, quality, proprietary products and investors; Shareholders’ Information. biologics are secretaries to the committee with Review of work done by the share regard to their respective businesses. transfer agent including their service CORPORATE SOCIAL RESPONSIBILITY standards; and (CSR) COMMITTEE The committee met four times during the Review of corporate actions related to The committee consists of three directors, year: on 21 May 2018, 26 July 2018, security holders. including the two executive directors. The 26 October 2018 and 1 February 2019. chairman is an independent director. Table 7 gives the composition and attendance record of the committee, and NOMINATION, GOVERNANCE AND COMPENSATION TABLE 6 report of the committee is enclosed as COMMITTEE MEMBERSHIP AND ATTENDANCE IN FY2019 Exhibit 3 to this Chapter. MEETINGS HELD IN THE ATTENDANCE AT COMMITTEE MEMBERS POSITION RISK MANAGEMENT COMMITTEE DIRECTOR’S THE MEETINGS TENURE The risk management committee also Mr. Anupam Puri Chairman 54(1) consists entirely of independent directors. (2) Its key functions are to: Mr. Bharat N Doshi Member 54 Discuss with senior management Mr. Prasad R Menon Member 55 regarding Enterprise Risk Management Mr. Leo Puri* Member 2 2 (ERM) and provide such oversight as (1) Was given leave of absence on request for one meeting. He participated in such meeting through tele-conference. may be needed; (2) Was given leave of absence on request for one meeting. Ensure that it is apprised of the most * Appointed as a member of the committee with eff ect from 25 October 2018. signifi cant risks along with mitigating actions; and SCIENCE, TECHNOLOGY AND OPERATIONS COMMITTEE TABLE 7 Review risk disclosure statements in MEMBERSHIP AND ATTENDANCE IN FY2019 any public documents or disclosures, MEETINGS HELD IN THE ATTENDANCE AT where applicable. COMMITTEE MEMBERS POSITION DIRECTOR’S THE MEETINGS TENURE The company has in place an enterprise- Dr. Bruce L A Carter Chairman 44 wide risk management system. The risk management committee of the board Mr. Anupam Puri Member 44 oversees and reviews the risk management Ms. Kalpana Morparia Member 44 framework as well as the assessment of Mr. Hans Peter Hasler* Member 10(1) risks, their management and mitigation Mr. Prasad R Menon Member 44 procedures. The committee reports its fi ndings Mr. Leo Puri** Member 22 and observations to the board. A section on Mr. Allan Oberman*** Member 0 0 risk management practices of the company under the ERM framework forms a part of (1) Was given leave of absence on request. * Resigned with eff ect from 14 June 2018 as an independent director. the Chapter on Management Discussion and ** Appointed as a member of the committee with eff ect from 25 October 2018. Analysis in this annual report. *** Appointed as a member of the committee with eff ect from 26 March 2019.

54 Company Overview Statutory Reports Financial Statements Annual Report 2018-19

The CSR committee’s primary functions are to: 25 October 2018 and 1 February 2019. It consists of two executive directors; Formulate, review and recommend The head of CSR offi ciates as the secretary and it met six times during the year: on to the board, a CSR policy indicating of the committee. Table 10 gives the 5 April 2018, 22 May 2018, 26 July 2018, the activities to be undertaken by the composition and attendance record of the 26 October 2018, 1 February 2019 and company as speciﬁ ed in schedule VII of committee, and its report is enclosed as 26 March 2019. The company secretary the Companies Act, 2013; Exhibit 6 to this Chapter. offi ciates as the secretary of the committee. Recommend the amount of expenditure to be incurred on the initiatives as per BANKING AND AUTHORIZATIONS OTHER BOARD MATTERS the CSR policy; COMMITTEE CAPITAL EXPENDITURES (CAPEX) Provide guidance on various CSR The banking and authorizations The board approves the annual capex initiatives undertaken by the company committee allows executive directors budget in line with the company’s long-term and monitor their progress; and and selected offi cers of the company strategy. An internal management committee Monitor implementation and adherence to deal with day-to-day business approves all capex investments within the to the CSR policy of the company from operations such as banking, annual capex budget approved by the time to time. treasury, insurance, excise, customs, board. An update on key capex approvals administration and dealing with other (and their relevant details) granted by the The CSR committee met four times during government/non-government authorities. internal management committee is generally the year: on 21 May 2018, 26 July 2018, provided to the board.

RISK MANAGEMENT COMMITTEE MEMBERSHIP AND COMPLIANCE REVIEWS TABLE 8 ATTENDANCE IN FY2019 We have a full-ﬂ edged team and an MEETINGS identiﬁ ed chief compliance offi cer HELD IN THE ATTENDANCE AT COMMITTEE MEMBERS POSITION (CCO) to oversee compliance activities. DIRECTOR’S THE MEETINGS The company’s compliance status TENURE is periodically updated to the senior Dr. Omkar Goswami Chairman 33 management team including the CEO, Dr. Bruce L A Carter Member 33COO and CFO, and presentations are Mr. Sridar Iyengar Member 32(1) given in the quarterly audit committee and Mr. Hans Peter Hasler* Member 10(2) risk management committee meetings. Ms. Shikha Sharma** Member 11When pertinent, these are also shared with Mr. Allan Oberman*** Member 0 0 all board members. (1) Was given leave of absence on request for one meeting. He participated in such meeting through tele-conference. (2) Was given leave of absence on request for one meeting. COBE AND VIGIL MECHANISM * Resigned with eff ect from 14 June 2018 as an independent director. We have adopted a code of business ** Appointed as a member of the committee with eff ect from 31 January 2019. conduct and ethics ('COBE' or the ‘code’), *** Appointed as a member of the committee with eff ect from 26 March 2019. which applies to all directors and employees, subsidiaries and affi liates. It is the STAKEHOLDERS' RELATIONSHIP COMMITTEE MEMBERSHIP responsibility of all directors and employees TABLE 9 AND ATTENDANCE IN FY2019 to familiarize themselves with this code and MEETINGS comply with its standards. The board and the HELD IN THE ATTENDANCE AT employees across the globe annually affi rm COMMITTEE MEMBERS POSITION DIRECTOR’S THE MEETINGS compliance with the code. A declaration of TENURE the co-chairman, managing director and CEO Ms. Kalpana Morparia Chairperson 44of the company to this eff ect is enclosed as Mr. Bharat N Doshi Member 43(1) Exhibit 7 to this Chapter. Mr. G V Prasad Member 44 Mr. K Satish Reddy Member 4 4 The company has an ombudsperson policy (1) Was given leave of absence on request for one meeting. (whistle-blower or vigil mechanism) to report concerns on actual or suspected violations of the code. The audit committee CORPORATE SOCIAL RESPONSIBILITY COMMITTEE TABLE 10 chairperson is the chief ombudsperson. MEMBERSHIP AND ATTENDANCE IN FY2019 Complaints and reports submitted to the MEETINGS company and their resolution are reported HELD IN THE ATTENDANCE AT COMMITTEE MEMBERS POSITION DIRECTOR’S THE MEETINGS through the chief ombudsperson to the TENURE audit committee and, where applicable, to Mr. Bharat N Doshi Chairman 44the board. During FY2019, no personnel has been denied access to the audit Mr. K Satish Reddy Member 44 committee on ombudsperson issues. Mr. G V Prasad Member 4 4

Building a winning future 55 Dr. Reddy’s Laboratories Limited

The COBE and ombudsperson policy are of the Companies (Accounts) Rules, 2014 managerial personnel are listed in the available on the company’s website: www. and the Companies (Indian Accounting fi nancial section of this annual report under drreddys.com/investors/governance/ Standards) Rules, 2015, as amended by the related party transactions. code-of-business-conduct-and-ethics-cobe Companies (Indian Accounting Standards) and www.drreddys.com/investors/ (Amendment) Rules, 2016, the guidelines PROHIBITION OF INSIDER TRADING governance/ombudsperson-policy issued by SEBI and other accounting We have a policy prohibiting insider principles generally accepted in India. trading in conformity with applicable RELATED PARTY TRANSACTIONS Regulations of the SEBI in India and the We have adequate procedures to identify MANAGEMENT Securities and Exchange Commission and monitor related party transactions. Our management develops and implements (SEC) of the USA. Necessary procedures All transactions entered into with related policies, procedures and practices that have been laid down for directors, parties during the fi nancial year were in attempt to translate the company’s officers, and designated persons for the ordinary course of business and on core purpose and mission into reality. trading in the securities of the company. arm’s length pricing basis. All related party It also identifi es, measures, monitors These are periodically communicated transactions are placed before the audit and minimizes risks in the business to such employees who are considered committee and the board for review and and ensures safe, sound and effi cient as insiders of the company. Apart from approval, as appropriate. The details of operations. These are internally supervised this, regular insider trading awareness related party transactions are discussed and monitored through the company’s sessions are conducted for the benefit in detail in note 2.22 to the standalone management council (MC). of designated persons. Trading window fi nancial statements. The company’s closure/blackouts/quiet periods, when policy on materiality of the related party the directors and designated persons are transactions is available on the company’s MANAGEMENT COUNCIL (MC) not permitted to trade in the securities of website: https://www.drreddys.com/ Our MC consists of senior management the company, are intimated in advance media/764069/policy-materiality-related- from the business and corporate functions. to all concerned. Violations of the policy, party-transactions.pdf Page nos. 20-21 of this annual report if any, are appropriately acted on and gives details of the members of the MC. reported to SEBI. The interested directors are not present for Apart from monthly meetings, the MC discussion and voting on such related party meets once a quarter for two-day sessions. transactions. Furthermore, the transactions Background notes for the monthly and INTERNAL CONTROL SYSTEMS with directors/their relatives/entities outside quarterly meetings are circulated in AND STATUTORY AUDITS our group, in which they are interested, advance. Listed below are some of the key We have both external and internal audit are reviewed by an independent chartered issues that were considered by the MC systems in place. Auditors have access to accountant. during the year under review: all records and information of the company. The company’s long-term strategy, The board recognizes the work of the SUBSIDIARY COMPANIES growth initiatives and priorities; auditors as an independent check on the The audit committee reviews the fi nancial Overall company performance, including information received from the management statements of our subsidiaries. It also those of various business units; on the operations and performance of the reviews the investments made by such Decision on major corporate policies; company. The board periodically reviews subsidiaries, the statement of all signifi cant Discussion and sign-off on annual plans, the fi ndings and recommendations of the transactions and arrangements entered budgets, investments and other major statutory and internal auditors and suggests into by subsidiaries, and the compliances initiatives; and corrective actions, whenever necessary. of each materially signifi cant subsidiary Discussion on business alliances on a periodic basis. The minutes of proposals and organizational design. INTERNAL CONTROLS board meetings of the subsidiary We maintain a system of internal controls companies are placed before our board MANAGEMENT DISCUSSION AND designed to provide reasonable assurance for review. The company’s policy for ANALYSIS regarding the achievement of objectives in determining material subsidiaries is the following categories: The Chapter on Management Discussion available on the company’s website: Eff ectiveness and effi ciency and Analysis forms a part of this https://www.drreddys.com/media/ of operations; annual report. 763674/policy-for-determining-material- Adequacy of safeguards for assets; subsidiaries.pdf Reliability of fi nancial and non-fi nancial MANAGEMENT DISCLOSURES reporting; and DISCLOSURE ON ACCOUNTING Senior management of the company (at the Compliance with applicable laws TREATMENT level of senior director and above, as and regulations. In the preparation of fi nancial statements well as certain identifi ed key employees) for FY2019, there is no treatment of make annual disclosures to the board The integrity and reliability of the internal any transaction which is diff erent from on all material, fi nancial and commercial control systems are achieved through that prescribed in the Indian Accounting transactions in which they may have clear policies and procedures, process Standards (Ind AS) notifi ed by the personal interest, if any, and which may automation, careful selection, training Government of India under Section 133 of have a potential confl ict with the interest and development of employees and an the Companies Act, 2013 read with Rule 7 of the company. Transactions with key organization structure that segregates

56 Company Overview Statutory Reports Financial Statements Annual Report 2018-19

responsibilities. Our internal audit is an and for issuing an opinion on the fi nancial SHAREHOLDERS independent, objective assurance and statements prepared in accordance MEANS OF COMMUNICATION advisory function, responsible for evaluating with IFRS as issued by the International 1. Quarterly and annual results: and improving the eff ectiveness of risk Accounting Standard Board (IASB) for Quarterly and annual results of the management, control and governance FY2019. company are published in widely processes. The internal audit team helps to circulated national newspapers enhance and protect organizational value The statutory and independent auditors such as the Business Standard and by providing risk-based objective assurance, render an opinion regarding the fair the local vernacular daily, Andhra advice, and insight. The internal audit team presentation in the fi nancial statements Prabha. These are also disseminated prepares annual audit plans based on of the company’s fi nancial condition internationally through Business Wire risk assessment and conducts extensive and operating results. Their audits are and made available on the company’s reviews covering fi nancial, operational conducted in accordance with generally website: www.drreddys.com. and compliance controls. Areas requiring accepted auditing standards and include The financial results were sent, if specialized knowledge are reviewed in a review of the internal controls, to the asked for, to the registered e-mail partnership with external experts or by extent necessary, to determine the addresses of shareholders. recruiting resources with specialized skills. audit procedures required to support Suggested improvement in processes are their opinion. 2. News releases, presentations, etc.: identifi ed during reviews and communicated The company has established systems to the management on an on going basis. While auditing the operations of the and procedures to disseminate relevant company, the external auditors recorded information to its stakeholders, including The audit committee of the board monitors their observations and fi ndings with the shareholders, analysts, suppliers, the performance of internal audit team on a management. These were then discussed customers, employees and the society periodic basis through review of audit plans, by the management and the auditors at at large. It also conducts earning calls audit fi ndings and speed of issue resolution the audit committee meetings — both with analysts and investors. Details of through follow-ups. Each year, there are face-to-face and via conference calls. communications made during the year at least four meetings in which the audit Remedial measures suggested by the are produced in Table 12. committee reviews internal audit fi ndings. auditors and the audit committee have During the year, the audit committee been either implemented or taken up for 3. Website: The primary source of chairman also met the CIA without the implementation by management. information regarding the company’s presence of management. operations is the company's website: The statutory and independent www.drreddys.com. All offi cial news CEO AND CFO CERTIFICATION auditors provide a confi rmation of their releases and presentations made to A certifi cate of the co-chairman, managing independence every fi nancial year. institutional investors and analysts are director and CEO as well as the CFO of They confi rm that the engagement team, posted here. It contains a separate the company on fi nancial statements and involved in the audit of the company and dedicated investors section where applicable internal controls as stipulated its group including network fi rms have the information for shareholders under Regulation 17(8) of the Listing complied with relevant ethical requirements is available. The webcast of the Regulations is enclosed as Exhibit 8 to regarding independence. proceedings of the AGM is generally this Chapter. also made available on the company’s They also confi rm that on the basis of website. STATUTORY AND INDEPENDENT procedures implemented within their practice, AUDITORS they have not identifi ed any situation or risk 4. Annual report: The company’s annual For FY2019, M/s. S R Batliboi & Associates likely to aff ect their independence as our report containing, inter alia, the LLP, chartered accountants (fi rm registration auditors for the fi nancial year within the terms board’s report, additional shareholders No. 101049W/E300004), the statutory of the rules of conduct applicable in India. information, the corporate governance auditors, audited the fi nancial statements report, the business responsibility prepared in accordance with the Ind AS. AUDITORS’ FEES report, management’s discussion and During the year, the company appointed During FY2019, the company and its analysis (MD&A), audited standalone M/s. Ernst & Young Associates LLP as subsidiaries, on a consolidated basis and consolidated fi nancial statements, independent registered public accounting paid the fees mentioned in Table 11 to auditors’ report and other important fi rm (independent auditor) to audit the M/s. S R Batliboi & Associates LLP, chartered information is circulated to shareholders annual consolidated fi nancial statements accountants, the statutory auditors, and others so entitled. The annual M/s. Ernst & Young Associates LLP, the report is also available on the (` MILLION) Independent auditors and other entities company’s website in a user-friendly TABLE 11 AUDITORS' FEES within their network. and downloadable form. TYPE OF SERVICE FY2019 FY2018 AGREEMENTS WITH MEDIA 5. Chairman’s speech: The speech given Audit fees 68.2 35.2 The company has not entered into any at the AGM is made available on the Tax fees 10.7 14.0 agreement with any media company and/or company’s website: www.drreddys.com All other fees 2.1 1.5 its associates. Total 81.0 50.7

Building a winning future 57 Dr. Reddy’s Laboratories Limited

6. Reminder to investors: Reminders to Mr. Prasad is a member of the company’s Limited, Dr. Reddy’s Institute of Life collect unclaimed dividend on shares board since 1986 and serves as our Sciences, International Foundation for or debenture redemption/interest are co-chairman, managing director and Research and Education, Indian School sent to the relevant shareholders and chief executive offi cer. of Business, Andhra Pradesh State Skill debenture holders. Development Corporation and company’s He leads the core team that drives the wholly owned subsidiaries - Aurigene 7. Compliances with stock exchanges: growth and performance at Dr. Reddy’s. He Discovery Technologies Limited and National Stock Exchange of India Limited has played a key role in the evolution of Idea2Enterprises (India) Private Limited in (NSE) and BSE Limited (BSE) maintain Dr. Reddy’s from a mid-sized pharmaceutical India; Aurigene Discovery Technologies separate online portals for electronic company into a globally respected Inc., Dr. Reddy’s Laboratories Inc., Promius submission of information by listed pharmaceutical major. Mr. Prasad is Pharma LLC in USA and Kunshan Rotam companies. Various communications widely credited as the architect of Reddy Pharmaceuticals Limited in China. such as notices, press releases and the Dr. Reddy’s successful Global Generics (GG) regular quarterly, half-yearly and annual and Active Pharmaceutical Ingredients (API) Apart from the committee memberships compliances and disclosures are fi led strategies, as well as the company’s foray in Dr. Reddy’s, he is also a member of the electronically on these portals. In addition, into biosimilars, Proprietary Products and nomination and remuneration committee such disclosures and communications are diff erentiated formulations. and the corporate social responsibility also sent to the NYSE and fi led with SEC. committee of company’s wholly-owned Mr. Prasad was listed among the Top 50 subsidiary Aurigene Discovery 8. Designated exclusive e-mail ID: CEOs that India ever had by Outlook Technologies Limited. We have designated an e-mail ID magazine in 2017 and was recognized as exclusively for investor services: one of the top 5 Most Valuable CEOs of Except Mr. Prasad and Mr. K Satish Reddy [email protected]. India by Business World in 2016. He was and their relatives, none of the other also listed in the prestigious ‘Medicine directors or key managerial personnel of the 9. Register to receive electronic Maker 2018 Power List’ of most inspirational company and their relatives are concerned communications: We provide professionals shaping the future of drug or interested, fi nancially or otherwise, in an option to the shareholders development, and has been named India the proposal of Mr. Prasad’s reappointment to register their e-mail ID online Business Leader of the year by CNBC (retiring by rotation) at the ensuing AGM. through the company’s website to Asia in 2015. receive electronic communications. MR. SRIDAR IYENGAR Shareholders who wish to receive Prior to May 2014, he held titles of Mr. Sridar Iyengar (aged 71 years, DIN: electronic communications may chairman and chief executive offi cer. 00278512) was appointed as a director on register at www.drreddys.com/ He was the managing director of Cheminor the board of the company in August 2011. investors/investor-services/ Drugs Limited, prior to its merger with In terms of Section 149 and other shareholder-information.aspx Dr. Reddy’s. He was reappointed as applicable provisions of the Companies whole-time director designated as Act, 2013, Mr. Iyengar was appointed as an 10. Disclosures: We have a policy on co-chairman, managing director and CEO independent director for a term of fi ve years the determination of materiality for of the company at the 32nd AGM of the at the 30th AGM of the company held on disclosure of certain events. members held on 27 July 2016, for a period 31 July 2014. of fi ve years commencing 30 January 2016 ADDITIONAL INFORMATION ON to 29 January 2021, liable to retire by Mr. Sridar Iyengar is an independent DIRECTORS SEEKING rotation. He retires by rotation at the mentor investor in early stage start-ups and REAPPOINTMENT AND 35th AGM of the company and, being companies. For more than 35 years, he has APPOINTMENT AT THE ENSUING eligible, off ers himself for reappointment. worked in the United Kingdom, the USA and ANNUAL GENERAL MEETING India with a large number of companies, Mr. Prasad is also a director on the advising them on strategy and other issues. MR. G V PRASAD boards of: Green Park Hotels and Earlier, he was a senior partner with KPMG Mr. G V Prasad (aged 58 years, Resorts Limited, Stamlo Industries in the USA and UK and also served as the DIN: 00057433) has a Bachelor degree in Limited, Dr. Reddy’s Holdings Limited, Chairman and CEO of KPMG’s operations Chemical Engineering from Illinois Institute Ruthenika Technologies Limited, in India. of Technology, Chicago in the USA, and an Molecular Connections Private Limited, M.S. in Industrial Administration from Purdue Dr. Reddy’s Trust Services Private Mr. Iyengar holds a B.Com. (Hons.) Degree University, Indiana in the USA. from the University of Calcutta and is a Fellow of the Institute of Chartered TABLE 12 DETAILS OF COMMUNICATION MADE DURING FY2019 Accountants in England and Wales. MEANS OF COMMUNICATION FREQUENCY Press releases/statements 60 Mr. Iyengar is also a director on the boards of: Mahindra Holidays and Resorts India Earnings calls 4 Limited, ICICI Venture Funds Management Publication of results 4 Company Limited, Cleartrip Private Limited, in India; AverQ Inc. in the USA.; Cleartrip Inc.

58 Company Overview Statutory Reports Financial Statements Annual Report 2018-19

in Cayman Islands; Holiday Club Resorts OY ICICI Group from 2001 to 2007. She has Mr. Leo Puri was the managing director of in Finland and our wholly-owned subsidiary, been recognized by several national and UTI Asset Management Co. Limited from Dr. Reddy’s Laboratories S.A., in Switzerland. international media for her role as one of August 2013 to August 2018. In his the leading women professionals. career of more than 30 years, Mr. Puri has Apart from the committee chairmanship or previously worked as director with McKinsey memberships in Dr. Reddy’s, he is also the Ms. Morparia is a graduate in science and & Company and as managing director chairman/member of committees of other law from Mumbai University. with Warburg Pincus. Mr. Puri has worked companies as given in Table 13 below: in the UK, USA and Asia. Since 1994, he She also holds directorship in Hindustan has primarily worked in India. At McKinsey, The board of directors has determined Unilever Limited and J.P. Morgan Services he has advised leading fi nancial institutions, that Mr. Iyengar is an audit committee India Private Limited in India, Philip Morris conglomerates and investment institutions fi nancial expert, as defi ned in Item 401(h) International Inc. in the USA. Ms. Morparia in strategy and operational issues. of Regulation S-K, and is independent is also a member of the governing board of He has contributed to the development of pursuant to applicable NYSE Rules. Bharti Foundation. knowledge and public policy through advice to regulators and government offi cials. Except Mr. Iyengar and his relatives, none Apart from committee chairpersonship or At Warburg Pincus, he was responsible for of the other directors or key managerial membership in Dr. Reddy’s, she is also a leading and managing investments across personnel of the company and their member of corporate social responsibility industries in India. He also contributed relatives are concerned or interested, committee of Hindustan Unilever Limited. to fi nancial services investments in the fi nancially or otherwise, in the proposal She is chairperson of nominating and international portfolio as a member of the of Mr. Iyengar’s reappointment at the corporate governance committee, global partnership. ensuing AGM. member of fi nance committee and product innovation and regulatory aff airs committee Mr. Puri has a Master’s degree in P.P.E. MS. KALPANA MORPARIA of Philip Morris International Inc. from the University of Oxford, and a Ms. Kalpana Morparia (aged 70 years, Master’s degree in Law from the University DIN: 00046081) was appointed as a Except Ms. Morparia and her relatives, none of Cambridge. director on the board of the company of the other directors or key managerial in June 2007. In terms of Section 149 personnel of the company and their Mr. Puri is also a director on the board and other applicable provisions of the relatives are concerned or interested, of Hindustan Unilever Limited, Northern Companies Act, 2013, Ms. Morparia was fi nancially or otherwise, in the proposal Arc Capital Limited and Indiaideas.com appointed as an independent director for of Ms. Morparia’s reappointment at the Limited (Billdesk). a term of fi ve years at the 30th AGM of the ensuing AGM. company held on 31 July 2014. Apart from committee chairpersonship MR. LEO PURI or memberships in Dr. Reddy’s, he is also Ms. Morparia is the Chairperson of Mr. Leo Puri (aged 58 years, a member of the audit committee and J.P. Morgan, South and Southeast DIN: 01764813) was appointed as nomination & remuneration committee of Asia. Ms. Morparia is a member of an additional director categorised as Hindustan Unilever Limited and Northern J.P. Morgan’s Asia Pacifi c Management independent by the board for a term of fi ve Arc Capital Limited. He is the chairman Committee. Prior to joining J.P. Morgan, India, years with eff ect from 25 October 2018 of the audit committee and nomination Ms. Morparia served as Vice Chair on up to 24 October 2023 subject to the & remuneration committee of India the boards of ICICI Group Companies approval of shareholders of the company Ideas.com Limited (Billdesk). and was the joint managing director of at the AGM.

TABLE 13 COMMITTEE CHAIRMANSHIPS/MEMBERSHIPS OF MR. SRIDAR IYENGAR COMPANY NAME COMMITTEE CHAIRMAN/MEMBER Mahindra Holidays and Resorts India Limited, India Audit committee Chairman Remuneration committee Member ICICI Venture Funds Management Company Limited, Nomination and remuneration committee Member India Corporate social responsibility committee Chairman Audit committee Chairman (with eff ect from 8 May 2019) Employee co-invest committee Member Funds committee Member Cleartrip Private Limited, India Audit committee Chairman Compensation committee Member Cleartrip Inc., Cayman Islands Audit committee Chairman Compensation committee Member Nominating & governance committee Chairman

Building a winning future 59 Dr. Reddy’s Laboratories Limited

Except Mr. Puri and his relatives, none company in India. She was a member MR. ALLAN OBERMAN of the other directors or key managerial of RBI’s technical advisory committee, Mr. Allan Oberman (aged 61 years, personnel of the company and their panel on fi nancial inclusion, committee on DIN: 08393837) was appointed as relatives are concerned or interested, comprehensive fi nancial services for small an additional director categorised as fi nancially or otherwise, in the proposal of businesses and low-income household, etc. independent by the board for a term of fi ve Mr. Puri’s appointment at the ensuing AGM. She has chaired CII’s national committee on years with eff ect from 26 March 2019 up to banking 2015-2017. 25 March 2024 subject to the approval of MS. SHIKHA SHARMA shareholders of the company at the AGM. Ms. Shikha Sharma (aged 60 years, Ms. Sharma holds an MBA from the Indian DIN: 00043265) was appointed as Institute of Management, Ahmedabad, B.A. Mr. Oberman served as the CEO an additional director categorised as (Hons.) in Economics and Post Graduate of Concordia International Corp. independent by the board for a term of Diploma in Software Technology from from November 2016 until May 2018. fi ve years with eff ect from 31 January 2019 National Centre for Software Technology In his career of more than 35 years, he also up to 30 January 2024 subject to the (NCST), Mumbai. served as CEO of Sagent Pharmaceuticals approval of shareholders of the company at Inc., and president and CEO of Teva the AGM. Ms. Sharma is also a director on the board Americas Generics, a subsidiary of Teva of Ambuja Cements Limited (with eff ect from Pharmaceutical Industries Limited. Prior to Ms. Sharma was the managing director 1 April 2019) and Tata Global Beverages that, Mr. Oberman served as president and CEO of Axis Bank, India’s third largest Limited (with eff ect from 7 May 2019). of Teva EMIA, where from 2010 to 2012 private sector bank from June 2009 up She is also a member of the board of he was responsible for Eastern Europe, to December 2018. As a leader adept governors of IIM, Lucknow. Middle East, Israel and Africa. From 2008 at managing change, she led the bank to 2010, he served as the chief operating on a transformation journey from being Apart from committee chairpersonship offi cer of the Teva International Group, primarily a corporate lender to a bank or memberships in Dr. Reddy’s, she is and from 2000 to 2008, he served as with a strong retail deposit franchise and also a member of the audit committee of the President and CEO of Teva Canada a balanced lending book. Ms. Sharma has Ambuja Cements Limited (with eff ect from (formerly Novopharm Limited). From 1996 more than three decades of experience 1 April 2019). to 2000, Mr. Oberman was the President in the fi nancial sector, having begun her of Best Foods Canada Inc. Mr. Oberman career with ICICI Bank Limited in 1980. Except Ms. Sharma and her relatives, none was also Vice Chairman of the Association During her tenure with the ICICI Group, of the other directors or key managerial for Accessible Medicines, Chairman of she was instrumental in setting up ICICI personnel of the company and their the Canadian Generic Pharmaceutical Securities. As managing director and CEO relatives are concerned or interested, Association, and served on the Associate of ICICI Prudential Life Insurance Company fi nancially or otherwise, in the proposal Board of the Canadian Association of Chain Limited, she led the company to become of Ms. Sharma’s appointment at the Drug Stores, and was a member of the the No. 1 private sector life insurance ensuing AGM.

TABLE 14 LISTED COMPANY DIRECTORSHIPS OF OTHER BOARD MEMBERS AS ON 31 MARCH 2019 DIRECTOR COMPANY LISTED IN DESIGNATION HELD Allan Oberman --- Anupam Puri Tech Mahindra Limited India Independent director Mahindra and Mahindra Limited Bharat N Doshi Godrej Consumer Products Limited India Independent director Dr. Bruce L A Carter Enanta Pharmaceutical Inc. Chairman USA Mirati Therapeutics Inc. Director Kalpana Morparia Philip Morris International Inc. USA Director Hindustan Unilever Limited India Independent director Leo Puri Hindustan Unilever Limited India Independent director Dr. Omkar Goswami CG Power and Industrial Solutions Limited Ambuja Cements Limited Godrej Consumer Products Limited India Independent director Bajaj Finance Limited Hindustan Construction Company Limited Bajaj Auto Limited Prasad R Menon SKF India Limited India Independent director Shikha Sharma --- Sridar Iyengar Mahindra Holidays and Resorts India Limited India Independent director

60 Company Overview Statutory Reports Financial Statements Annual Report 2018-19

board of directors of the Baycrest Centre 2. Shareholders’ rights: We did not send “Committee” means nomination, Foundation, the Electronic Commerce half-yearly results to the household governance and compensation committee Council, and the Food and Consumer of each shareholder(s) in FY2019. of the company as constituted or Products Association of Canada. However, in addition to displaying reconstituted by the board, from time our quarterly and half-yearly results to time. Mr. Allan Oberman holds an MBA from the on our website: www.drreddys.com Schulich School of Business, York University, and publishing in widely circulated “Company” means Dr. Reddy’s Toronto and a BA from Western University, newspapers, the quarterly fi nancial Laboratories Limited. London. results were sent, if asked for, to the registered e-mail addresses of “Director” means directors of the company. Mr. Oberman is also a director on the board shareholders. of Planet Shrimp Inc. and Jay Pharma Inc., “Employee” means any person, including both in Canada with eff ect from 3. Audit qualifi cations: The auditors have offi cers who are in the permanent 4 April 2019. not qualifi ed the fi nancial statements of employment of the company. the company. Apart from committee chairpersonship “Independent Director” As provided or memberships in Dr. Reddy’s, he is 4. Separate post of chairman and CEO: under clause 49 of the Listing Agreement not a member or chairman of any other Mr. K Satish Reddy is the chairman of and/or under the Companies Act, 2013, committees. the company; and Mr. G V Prasad is ‘independent director’ shall mean the co-chairman, managing director a non-executive director, other than Except Mr. Oberman and his relatives, none and CEO. a nominee director of the company: of the other directors or key managerial personnel of the company and their 5. Reporting of internal audit: The chief a) who, in the opinion of the board, is relatives are concerned or interested, internal auditor regularly updates a person of integrity and possesses fi nancially or otherwise, in the proposal the audit committee on internal audit relevant expertise and experience; of Mr. Oberman’s appointment at the fi ndings at the committee’s meetings b) (i) who is or was not a promoter of the ensuing AGM. and conference calls. company or its holding, subsidiary or associate company; LISTED COMPANY DIRECTORSHIP OF ADDITIONAL SHAREHOLDERS’ (ii) who is not related to promoters or BOARD MEMBERS INFORMATION directors in the company, its holding, Mr. K Satish Reddy and Mr. G V Prasad, subsidiary or associate company; The Chapter on Additional Shareholders’ executive directors do not hold directorship Information forms a part of this in any listed company. Table 14 enumerates c) apart from receiving director’s annual report. directorship of other directors listed remuneration, has or had no pecuniary entities, other than Dr. Reddy’s, as on relationship with the company, 31 March 2019. ANNEXURE A its holding, subsidiary or associate REMUNERATION POLICY company, or their promoters, COMPLIANCE REPORT ON THE I. CONTEXT or directors, during the two immediately NYSE CORPORATE GOVERNANCE The purpose of this policy is to set over preceding fi nancial years or during the GUIDELINES principles, parameters and governance current fi nancial year; Pursuant to Section 303A.11 of the NYSE framework of the remuneration for directors, Listed Company Manual, a foreign private KMPs, senior management personnel and d) none of whose relatives has or had issuer, as defi ned by the SEC, must make employees. This policy will assist the board pecuniary relationship or transaction its US investors aware of signifi cant ways in to fulfi l its responsibility towards attracting, with the company, its holding, subsidiary which its corporate governance practices retaining and motivating the directors, or associate company, or their diff er from those required of domestic KMPs, senior management personnel promoters, or directors, amounting companies under NYSE listing standards. and employees through competitive and to two per cent or more of its gross Our detailed analysis of this is available on reasonable remuneration in line with the turnover or total income or fi fty lakh the company’s website: www.drreddys.com corporate and individual performance. rupees or such higher amount as may This document outlines following be prescribed, whichever is lower, COMPLIANCE REPORT ON policies/ guidelines: during the two immediately preceding DISCRETIONARY REQUIREMENTS A. Performance evaluation of directors fi nancial years or during the current UNDER REGULATION 27(1) OF THE B. Remuneration principles fi nancial year; LISTING REGULATIONS C. Board diversity e) who, neither himself nor any of 1. The board: Our chairman is an executive II. DEFINITIONS his relatives – director and maintains the chairman’s “Board” means board of directors of (i) holds or has held the position of offi ce at the company’s expenses for the the company. a key managerial personnel or performance of his duties. is or has been employee of the

Building a winning future 61 Dr. Reddy’s Laboratories Limited

company or its holding, subsidiary Unless the context otherwise requires, company successfully. There shall be a clear or associate company in any of the words and expressions used in this policy linkage of remuneration to performance and three fi nancial years immediately and not defi ned herein but defi ned in the health targets. The remuneration shall be a preceding the fi nancial year in which Companies Act, 2013 as may be amended mix of fi xed and variable pay/long-term pay he is proposed to be appointed; from time to time shall have the meaning refl ecting short and long-term performance (ii) is or has been an employee or respectively assigned to them therein. objectives appropriate to the working of the proprietor or a partner, in any of the company and its strategic goals. three fi nancial years immediately III. APPLICABILITY preceding the fi nancial year This policy is applicable to the following: The key principles for each of the positions in which he is proposed to be Directors (executive and non-executive); are outlined below: appointed, of a fi rm of auditors or Key managerial personnel (KMPs); company secretaries in practice Senior management personnel; and 1. Executive directors – The executive or cost auditors of the company Other employees. directors shall be paid remuneration or its holding, subsidiary or by way of monthly compensation and associate company; or any legal IV. EVALUATION OF DIRECTORS profi t based commission. The total or a consulting fi rm that has or had For the purpose of determining remuneration to be paid to the executive any transaction with the company, remuneration (based on profi tability of the directors shall be within the limits its holding, subsidiary or associate company), the evaluation criteria of the prescribed under the provisions of company amounting to ten per cent executive and non-executive directors are the Companies Act, 2013 and Rules or more of the gross turnover of as outlined below: made thereunder; such fi rm; (iii) holds together with his relatives two 1. Executive directors: 2. Non-executive directors – The per cent or more of the total voting a) Financial metrics covering growth in non-executive directors shall receive power of the company; or return on capital employed (RoCE) remuneration by way of sitting fees (iv) is a chief executive or director, and profi tability; and reimbursement of expenses by whatever name called, of any b) Non-fi nancial metrics covering for attending meetings of board or non-profi t organization that receives aspects such as health, brand committee thereof. In addition, the twenty fi ve per cent or more of its building, compliance, quality and non-executive and independent receipts from the company, any of its sustainability of operations of the directors shall also be eligible to receive promoters, directors or its holding, organization, as may be agreed profi t related commission, as may be subsidiary or associate company upon from time to time with the approved by the shareholders of the or that holds two per cent or more company. company. They shall not be entitled to of the total voting power of the any stock options; company; and 2. Non-executive directors: (v) is a material supplier, service a) Level of engagement, independence The chairman of the company provider or customer or a lessor or of judgment, etc., and their shall propose remuneration to be lessee of the company. contribution in enhancing the paid to non-executive directors. board’s overall eff ectiveness; The proposal for the remuneration f) who is not less than 21 years of age. b) The non-executive directors may be benchmarked with global remuneration shall be globally pharmaceutical companies and the “Key Managerial Personnel” is as defi ned benchmarked with similar contribution made and time dedicated under the Companies Act, 2013 and means organizations; by each director; a) the chief executive offi cer or the c) Participation in the committees managing director or the manager (either as chairperson or member) 3. KMPs and senior management (having ultimate controls over aff airs of and the board meetings. personnel – Dr. Reddy’s recognizes that the company); those chosen to lead the organization b) the company secretary; V. REMUNERATION OF DIRECTORS, are vital to its ongoing success and c) the whole-time director; KMPs, SENIOR MANAGEMENT growth. Thus, these executives should d) the chief fi nancial offi cer; and PERSONNEL AND OTHER EMPLOYEES be off ered competitive and reasonable e) such other offi cer as may be prescribed The committee shall recommend to the compensation so that Dr. Reddy’s can under the applicable statutory board for their approval, any remuneration attract, retain and encourage critical provisions/regulations from time to time. to be paid to the executive directors. talent to meet important organizational The committee will separately review and goals and strategies. The compensation “Senior Management” means approve the remuneration to be paid to will be the mix of fi xed pay, variable offi cers/personnel of the company who are KMPs and senior management personnel. pay, performance based incentive plans members of its core management team or stock options. The executive total excluding board of directors comprising The level and composition of remuneration compensation program will be fl exible all members of management one level so determined by the committee shall be to diff erentiate pay to recognize an below the executive directors, including the reasonable and suffi cient required to attract, individual incumbents’ critical skills, functional heads. retain and motivate directors, KMPs and contributions, and future potential to senior management in order to run the impact the organization’s success; and

62 Company Overview Statutory Reports Financial Statements Annual Report 2018-19

4. Other employees – The compensation EXHIBIT 1 To ensure that the accounts of the company program for employees is designed REPORT OF THE AUDIT COMMITTEE are properly maintained and that accounting to help drive performance culture and To the shareholders of transactions are in accordance with align employees for the creation of Dr. Reddy’s Laboratories Limited the prevailing laws and regulations, the sustainable value through behaviors committee reviewed the internal controls like execution excellence, innovation The audit committee of the board of put in place by the company. In conducting and leadership. In line with the directors consists of four directors. such reviews, the committee found no organization principles of managing Each member is an independent material discrepancy or weakness in the the long-term and meritocracy, there director as defi ned under Indian laws, company’s internal control systems. are four principles of pay which have Listing Regulations and the New York been enumerated – ability to pay, Stock Exchange Corporate Governance During the year, the committee also position-linked pay, person-specifi c Guidelines. The committee operates under reviewed the following: pay and performance-linked pay. a written charter adopted by the board of a) Non-audit services being provided by The company may periodically review directors, and has been vested with all the the statutory and independent auditors the compensation and benefi ts at all powers necessary to eff ectively discharge and concluded that such services were levels to ensure that the company its responsibilities. not in confl ict with their independence; remains competitive and is able to b) Structure of the internal audit attract and retain desirable talent. Dr. Reddy’s management has primary function and chief internal auditor’s responsibility for the fi nancial statements remuneration; and The committee may review the overall and reporting process, including the c) Related party transactions, compensation approach for employees systems of internal controls. During FY2019, as applicable. and on any changes done for the entire the audit committee met fi ve times. organization. It discussed with the company’s internal The committee ensures that the company’s auditors, statutory auditors and independent code of business conduct and ethics has VI. BOARD DIVERSITY auditors the scope and plans for their a mechanism such that no personnel Building a diverse and inclusive workplace respective audits. It also discussed the intending to make a complaint relating to is an integral part of Dr. Reddy’s culture. results of their examination, their evaluation securities and fi nancial reporting shall be These principles are also applied to the of the company’s internal controls, and denied access to the audit committee. composition of our board. overall quality of the company’s fi nancial reporting. The audit committee provides The audit committee has recommended to The board of directors shall have the at each of its meetings an opportunity the board of directors: optimum combination of directors from for internal and external auditors to a) That the audited standalone and diff erent areas/fi elds of expertise and meet privately with the members of consolidated fi nancial statements of experience like operations, management, the committee, without the presence Dr. Reddy’s Laboratories Limited for the quality assurance, fi nance, sales and of management. year ended 31 March 2019 prepared as marketing, supply chain, research and per Ind AS be approved by the board as development, human resources etc., or as In fulfi lling its oversight responsibilities, a true and fair statement of the fi nancial may be considered appropriate. The board the committee reviewed and discussed status of the company; and shall have at least one member who has the company’s quarterly unaudited and b) That the fi nancial statements prepared accounting or related fi nancial management annual audited fi nancial statements with as per IFRS as issued by International expertise and at least three members who the management. M/s. S R Batliboi & Accounting Standards Board for are fi nancially literate. Associates LLP, chartered accountants, the the year ended 31 March 2019 be company’s statutory auditors for fi nancial approved by the board and be included At least one member of the board should be statements prepared in accordance with in the company’s annual report on Form a woman. Ind AS, and M/s. Ernst & Young Associates 20-F, to be fi led with the US Securities LLP, the company’s independent auditors and Exchange Commission. VII. CONFIDENTIALITY for fi nancial statements prepared in The members of the committee may not accordance with IFRS, are responsible for In addition, the committee has also disclose, in particular, the information expressing their opinion on the conformity recommended appointment of the contained in the confi dential reports they of the company’s fi nancial statements with secretarial auditor, cost auditor and receive or the contents of confi dential generally accepted accounting principles independent auditor to the board. discussions. They shall also ensure that (GAAP), as applicable. any employees appointed to support them Sridar Iyengar likewise comply with this rule. Relying on the review and discussions with Chairman, Audit Committee the management and the auditors, the audit VIII. REVIEW committee believes that the company’s Place : Hyderabad This policy will be reviewed at appropriate fi nancial statements are fairly presented in Date : 16 May 2019 time, as decided by the committee. conformity with Indian accounting standards The utility and interpretation of this (Ind AS) and the IFRS as issued by the policy will be at the sole discretion of International Accounting Standards Board in the committee. all material aspects.

Building a winning future 63 Dr. Reddy’s Laboratories Limited

EXHIBIT 2 As on 31 March 2019, the company had The committee’s primary responsibilities REPORT OF THE NOMINATION, 760,956 outstanding stock options, which are to: GOVERNANCE AND COMPENSATION amounts to 0.46% of total equity capital. Review scientifi c, medical and technical COMMITTEE These options are held by 332 employees matters and operations involving the To the shareholders of of the company and its subsidiaries under: company’s development and discovery Dr. Reddy’s Laboratories Limited a) ‘Dr. Reddy’s Employees Stock Options programs (generic and proprietary), Scheme, 2002’; including major internal projects, The nomination, governance and b) ‘Dr. Reddy’s Employees ADR Stock business development opportunities, compensation committee of the board Options Scheme, 2007’; and interaction with academic and other of directors consists of four independent c) ‘Dr. Reddy’s Employees Stock Option outside research organizations; directors as defi ned under Indian laws, Scheme, 2018’. Assist the board and the management Listing Regulations and the New York in the creation of valuable intellectual Stock Exchange Corporate Governance 385,296 stock options are exercisable property (IP); Guidelines. The committee operates under at par value i.e. ` 5/- and 375,660 stock Review the status of non-infringement a written charter adopted by the board of options are exercisable at fair market value. patent challenges; directors, and has been vested with all the Assist the board and the management powers necessary to eff ectively discharge The committee met fi ve times during in building and nurturing science in the its responsibilities. the fi nancial year. In addition to the organization to support its business normal fulfi lment of its responsibilities as strategy; and The committee’s primary responsibilities described above, this year the committee Review the safety and quality of the are to: has given special emphasis to board companies operations. Assess the company’s policies and renewal, including inducting new directors, processes in key areas of corporate identifying candidates for the board, and The committee met four times during the governance and the impact of related modifying committee composition. It has fi nancial year and apprised the board on signifi cant regulatory and statutory also worked with management to review key discussions and recommendations changes, if any, to ensure that the the organization design, plan for upgrading made at such meetings. company is at the forefront of good and retaining talent at all levels, review corporate governance; succession plans for key positions, and Dr. Bruce L A Carter Periodically examine the structure, support revision of training programs and Chairman, Science, Technology and composition and functioning of the the performance enablement systems. Operations Committee board, and recommend changes, as necessary, to improve the board’s It also reviewed the company's system for Place : Hyderabad eff ectiveness, oversee the evaluation of hiring, developing and retaining talent. Date : 16 May 2019 the board and formulation of criteria for Anupam Puri such evaluation; EXHIBIT 4 Examine major aspects of the Chairman, Nomination, Governance and REPORT OF THE RISK MANAGEMENT company’s organizational design, and Compensation Committee COMMITTEE recommend changes as necessary; To the shareholders of Formulate policies on the remuneration Place : Hyderabad Dr. Reddy’s Laboratories Limited of directors, KMP and other employees Date : 16 May 2019 and on board diversity; The risk management committee of the Review and recommend compensation EXHIBIT 3 board of directors consists of fi ve directors. and variable pay for executive directors REPORT OF THE SCIENCE, Each member is an independent director as to the board; TECHNOLOGY AND OPERATIONS defi ned under Indian laws, Listing Regulations Establish, in consultation with the COMMITTEE and the New York Stock Exchange Corporate management, the compensation To the shareholders of Governance Guidelines. The committee program for the company, and Dr. Reddy’s Laboratories Limited operates under a written charter adopted by recommend it to the board for approval, the board of directors and has been vested and in that context: The science, technology and operations with all the powers necessary to eff ectively - Establish annual key result areas committee of the board of directors discharge its responsibilities. (KRAs) for the executive directors consists of six independent directors and oversee the status of their as defined under Indian laws, Listing The committee’s primary responsibilities achievement; Regulations and the New York Stock are to: - Review, discuss and provide Exchange Corporate Governance Discuss with senior management the guidance to the management, on Guidelines. The committee operates company’s enterprise-level risks and the KRAs for members of the MC, under a written charter adopted by provide oversight as may be needed; KMP and their remuneration; and the board of directors, and has been Ensure it is apprised of the most - Review the company’s ESOP vested with all the powers necessary to signifi cant risks and emerging issues, schemes and oversee its effectively discharge its responsibilities. along with actions that the management administration. is taking and how it is ensuring eff ective enterprise risk management (ERM); and

64 Company Overview Statutory Reports Financial Statements Annual Report 2018-19

Review risk disclosure statements in any EXHIBIT 6 employees and directors of the company, public documents or disclosures. REPORT OF THE CORPORATE SOCIAL its subsidiaries and affi liates. Under the RESPONSIBILITY COMMITTEE code, it is the responsibility of all employees The committee met thrice during the fi nancial To the shareholders of and directors to familiarize themselves with year to review the status of mitigation of key Dr. Reddy’s Laboratories Limited the code and comply with its standards. business and fi nancial risks, cyber security related risks risk management initiatives, The corporate social responsibility (CSR) I hereby certify that the board members evaluate residual risk thereof and recommend committee of the board of directors consists and senior management personnel of interventions from time to time. It also of three directors, including two executive Dr. Reddy’s have affi rmed compliance with apprised the board on key discussions and directors. The chairman is an independent the code of the company for the fi nancial recommendations made at such meetings and director as defi ned under Indian laws, year 2018-19. shared information on enterprise-wide risks. Listing Regulations and the New York G V Prasad Dr. Omkar Goswami Stock Exchange Corporate Governance Co-Chairman, Managing Director and CEO Chairman, Risk Management Committee Guidelines. The committee operates under a written charter adopted by the board of Place : Hyderabad Place : Hyderabad directors, and has been vested with all the Date : 17 May 2019 Date : 16 May 2019 powers necessary to eff ectively discharge its responsibilities. EXHIBIT 8 EXHIBIT 5 The committee believes that its primary CEO AND CFO CERTIFICATE TO THE REPORT OF THE STAKEHOLDERS' responsibilities are to: BOARD PURSUANT TO REGULATION RELATIONSHIP COMMITTEE Formulate, review and recommend 17(8) OF THE LISTING REGULATIONS To the shareholders of to the board a CSR policy indicating We, G V Prasad, co-chairman, managing Dr. Reddy’s Laboratories Limited the activities to be undertaken by the director and chief executive offi cer and company as specifi ed in schedule VII of Saumen Chakraborty, president and The stakeholders’ relationship committee the Companies Act, 2013; chief fi nancial offi cer, to the best of our of the board of directors consists of four Recommend the amount of expenditure knowledge and belief, hereby certify that: directors. Out of them two members are to be incurred on the initiatives as per independent directors as defi ned under the CSR policy; A. We have reviewed the fi nancial Indian laws, Listing Regulations and the Provide guidance on various CSR statements including the cash fl ow New York Stock Exchange Corporate initiatives undertaken by the company statement (standalone and consolidated) Governance Guidelines. The committee and to monitor their progress including for the fi nancial year ended 31 operates under a written charter adopted by their impact; and March 2019 and that these statements: the board of directors, and has been vested Monitor implementation and adherence i. do not contain any materially untrue with all the powers necessary to eff ectively to the CSR policy of the company from statement or omit any material fact discharge its responsibilities. time to time. or contain statements that might be misleading; and The committee believes that its primary During the fi nancial year, the committee met ii. together present a true and fair view responsibilities are to: four times. It also reviewed and apprised the of the company’s aff airs and are in Review investor complaints and their board on the CSR budget, key discussions compliance with existing accounting redressal; and recommendations made at such standards, applicable laws and Review of queries received from meetings and shared information on the regulations. investors; overall CSR initiatives undertaken by the Review of work done by the share company. B. There are no transactions entered into transfer agent including their service by the company during the year, which standards; and Bharat N Doshi are fraudulent, illegal or violate the Review corporate actions related to Chairman, Corporate Social Responsibility company’s code of business conduct security holders. Committee and ethics. The committee met four times during the Place : Hyderabad C. We accept the responsibility for fi nancial year. It also reviewed the functioning Date : 16 May 2019 establishing and maintaining internal of the company’s secretarial and investor controls for fi nancial reporting and that relations functions. It apprised the board on EXHIBIT 7 we have evaluated the eff ectiveness of key discussions and recommendations made THE CEO’S DECLARATION ON internal control systems of the company at such committee meetings. COMPLIANCE WITH CODE OF pertaining to fi nancial reporting and Kalpana Morparia BUSINESS CONDUCT AND ETHICS have disclosed to the auditors and the Chairperson, Stakeholders Relationship Dr. Reddy’s Laboratories Limited has audit committee, defi ciencies in the Committee adopted a code of business conduct and design or operation of such internal ethics (‘the code’) which applies to all controls, if any, of which we are aware Place : Hyderabad and the steps we have taken or propose Date : 16 May 2019 to take to address these defi ciencies.

Building a winning future 65 Dr. Reddy’s Laboratories Limited

D. We have disclosed, wherever (Listing Obligations and Disclosure assessment of the risks associated applicable, to the auditors and the Requirements) Regulations, 2015, as in compliance of the Corporate audit committee: amended (“the Listing Regulations”) Governance Report with the applicable i. That there were no defi ciencies in (‘reporting criteria’) for the year ended criteria. Summary of key procedures the design or operations of internal March 31, 2019 as required by the performed include: Company for annual submission to the controls that could adversely i. Reading and understanding of Stock exchange. aff ect the company’s ability to the information prepared by the record, process, summarize and MANAGEMENT’S RESPONSIBILITY Company and included in its report fi nancial data including any 2. The preparation of the Corporate Corporate Governance Report; corrective actions; Governance Report is the responsibility ii. that there are no material ii. Obtained and verifi ed that the of the Management of the Company weaknesses in the internal controls composition of the Board of including the preparation and over fi nancial reporting; Directors with respect to executive maintenance of all relevant supporting iii. that there are no signifi cant changes and non-executive directors has records and documents. This in internal control over fi nancial been met throughout the reporting responsibility also includes the design, reporting during the year; period; implementation and maintenance iv. all signifi cant changes in the of internal control relevant to the iii. Obtained and read the Directors accounting policies during the preparation and presentation of the Register as on March 31, 2019 and year, if any, and that the same have Corporate Governance Report. verifi ed that atleast one woman been disclosed in the notes to the director was on the Board during the fi nancial statements; and 3. The Management along with the Board year; v. that there are no instances of of Directors are also responsible for signifi cant fraud of which we have ensuring that the Company complies iv. Obtained and read the minutes of become aware of and involvement with the conditions of Corporate the following committee meetings therein of the management or an Governance as stipulated in the Listing held from April 01, 2018 to March 31, employee having a signifi cant role Regulations, issued by the Securities 2019: in the company’s internal control and Exchange Board of India. (a) Board of Directors meeting; system over fi nancial reporting. (b) Audit committee; AUDITOR’S RESPONSIBILITY G V Prasad (c) Nomination, Governance and 4. Pursuant to the requirements of the Compensation committee; Co-Chairman, Managing Director & CEO Listing Regulations, our responsibility (d) Stakeholders Relationship is to express a reasonable assurance committee; Saumen Chakraborty in the form of an opinion whether President & Chief Financial Offi cer the Company has complied with the (e) Corporate Social Responsibility conditions of Corporate Governance as committee Place : Hyderabad specifi ed in the Listing Regulations. (f) Risk management committee; Date : 15 May 2019 (g) Independence directors 5. We conducted our examination of meeting; and the Corporate Governance Report INDEPENDENT AUDITOR’S REPORT (h) Annual General meeting; ON COMPLIANCE WITH THE in accordance with the Guidance CONDITIONS OF CORPORATE Note on Reports or Certifi cates for v. Obtained necessary representations GOVERNANCE AS PER PROVISIONS Special Purposes and the Guidance and declarations from directors OF CHAPTER IV OF SECURITIES Note on Certifi cation of Corporate of the Company including the AND EXCHANGE BOARD OF INDIA Governance, both issued by the Institute independent directors; and (LISTING OBLIGATIONS AND of Chartered Accountants of India (“ICAI”). The Guidance Note on Reports vi. Performed necessary inquiries with DISCLOSURE REQUIREMENTS) the management and also obtained REGULATIONS, 2015, AS AMENDED or Certifi cates for Special Purposes requires that we comply with the ethical necessary specifi c representations from To the Members of requirements of the Code of Ethics management. Dr. Reddy’s Laboratories Limited, issued by the Institute of Chartered 8-2-337, Road No. 3, Banjara Hills, 8. The above-mentioned procedures Accountants of India. Hyderabad – 500 034. include examining evidence supporting 6. We have complied with the relevant the particulars in the Corporate 1. The Corporate Governance Report applicable requirements of the Standard Governance Report on a test basis. prepared by Dr. Reddy’s Laboratories on Quality Control (SQC) 1, Quality Further, our scope of work under this Limited (hereinafter the “Company”), Control for Firms that Perform Audits report did not involve us performing contains details as required in and Reviews of Historical Financial audit tests for the purposes of regulation 17 to 27, clauses (b) to (i) Information, and Other Assurance and expressing an opinion on the fairness of sub-regulation (2) of regulation 46 Related Services Engagements. or accuracy of any of the fi nancial and para C, D, E of Schedule V of the information or the fi nancial statements Securities and Exchange Board of India 7. The procedures selected depend on of the Company taken as a whole. the auditor’s judgement, including the

66 Company Overview Statutory Reports Financial Statements Annual Report 2018-19

OPINION PRACTICING COMPANY verifi cations (including Director Identifi cation 9. Based on the procedures performed SECRETARY’S CERTIFICATE OF Number (DIN) status at the portal by us as referred in paragraph 7 above, NON-DISQUALIFICATION OF www.mca.gov.in) as considered necessary and according to the information and DIRECTORS and explanations furnished to us by the explanations given to us, we are of the (pursuant to Regulation 34(3) and Schedule Company and its offi cers, we hereby opinion that the Company has complied V Para C clause (10)(i) of the SEBI (Listing certify that none of the Directors on the with the conditions of Corporate Obligations and Disclosure Requirements) Board of the Company as stated below for Governance as specifi ed in the Listing Regulations, 2015) the Financial Year ending on 31st March, Regulations, as applicable for the year 2019 have been debarred or disqualifi ed ended March 31, 2019, referred to in To, from being appointed or continuing as paragraph 1 above. The Members of Directors of Companies by the Securities Dr. Reddy’s Laboratories Limited, and Exchange Board of India, Ministry OTHER MATTERS AND RESTRICTION 8-2-337, Road No.3, Banjara Hills, of Corporate Aff airs or any such other ON USE Hyderabad - 500 034, Telangana. Statutory Authority: 10. This report is neither an assurance as to the future viability of the Company We have examined the relevant Ensuring the eligibility for the nor the effi ciency or eff ectiveness with registers, records, forms, returns and appointment/continuity of every Director which the management has conducted disclosures received from the Directors of on the Board is the responsibility of the aff airs of the Company. Dr. Reddy’s Laboratories Limited having the management of the Company. CIN (Corporate Identifi cation Number) Our responsibility is to express an opinion 11. This report is addressed to and provided L85195TG1984PLC004507 and having on these based on our verifi cation. to the members of the Company registered offi ce at 8-2-337, Road No.3, This certifi cate is neither an assurance as solely for the purpose of enabling it to Banjara Hills, Hyderabad - 500 034, to the future viability of the Company nor of comply with its obligations under the Telangana (hereinafter referred to as ‘the the effi ciency or eff ectiveness with which Listing Regulations with reference to Company’), produced before us by the the management has conducted the aff airs compliance with the relevant regulations Company for the purpose of issuing this of the Company. of Corporate Governance and should Certifi cate, in accordance with Regulation not be used by any other person or for 34(3) read with Schedule V Para-C sub For R & A Associates any other purpose. Accordingly, we do clause (10)(i) of the Securities Exchange not accept or assume any liability or any Board of India (Listing Obligations and (G Raghu Babu) duty of care or for any other purpose Disclosure Requirements) Regulations, Partner or to any other party to whom it is 2015. FCS. No.# 4448, C.P. # 2820 shown or into whose hands it may come without our prior consent in writing. We In our opinion and to the best of our Place : Hyderabad have no responsibility to update this information and according to the Date : 13 May 2019 report for events and circumstances occurring after the date of this report. SL NAME OF DIRECTOR DIN DATE OF APPOINTMENT IN COMPANY NO for S.R. Batliboi & Associates LLP 1. Satish Reddy Kallam 00129701 18th January, 1993 Chartered Accountants ICAI Firm Registration Number: 2. Venkateswara Prasad Gunupati 00057433 8th April, 1986 101049W/E300004 3. Anupam Pradip Puri 00209113 4th June, 2002 4. Bruce Leonard Andrews Carter 02331774 21st July, 2008 Per S Balasubrahmanyam 5. Kalpana Jaisingh Morparia 00046081 5th June, 2007 Partner 6. Omkar Goswami 00004258 30th October, 2000 Membership Number: 053315 7. Sridar Arvamudhan Iyengar 00278512 22nd August, 2011 8. Bharat Narotam Doshi 00012541 11th May, 2016 UDIN : 19053315AAAAAH9433 9. Prasad Raghava Menon 00005078 30th October, 2017 Place : Hyderabad 10. Leo Puri 01764813 25th October, 2018 Date : 17 May 2019 11. Shikha Sanjaya Sharma 00043265 31st January, 2019 12. Allan Grant Oberman 08393837 26th March, 2019

Building a winning future 67 Dr. Reddy’s Laboratories Limited

ADDITIONAL SHAREHOLDERS’ INFORMATION

CONTACT INFORMATION INDIAN RETAIL INVESTORS INTERNATIONAL SECURITIES REGISTERED AND CORPORATE OFFICE Sandeep Poddar IDENTIFICATION NUMBER (ISIN) Dr. Reddy’s Laboratories Limited Company Secretary ISIN is a unique identifi cation number 8-2-337, Road No. 3, Banjara Hills Tel: +91-40-4900 2222 of traded scrip. This number has to be Hyderabad 500 034, Telangana, India Fax: +91-40-4900 2999 quoted in each transaction relating to the Tel: +91-40-4900 2900 E-mail ID: [email protected] dematerialized securities of the company. Fax: +91-40-4900 2999 The ISIN number of our equity shares is Website: www.drreddys.com ANNUAL GENERAL MEETING INE089A01023. CIN: L85195TG1984PLC004507 Date Tuesday, 30 July 2019 E-mail ID: [email protected] Time 9.30 am CUSIP NUMBER FOR ADRS Venue The Ballroom The committee on uniform security REPRESENTING OFFICERS Hotel Park Hyatt identifi cation procedures (CUSIP) of Correspondence to the following offi cers Road No. 2, Banjara Hills the American Bankers Association has may be addressed at the registered and Hyderabad 500 034 developed a numbering system for corporate offi ce of the company. Last date for receipt of proxy forms: securities. A CUSIP number uniquely Sunday, 28 July 2019 before 9.30 am. identifi es a security and its issuer and this COMPLIANCE OFFICER UNDER is recognized globally by organizations SECURITIES AND EXCHANGE BOARD DIVIDEND adhering to standards issued by the OF INDIA (LISTING OBLIGATIONS International Securities Organization. The board of directors of the company has AND DISCLOSURE REQUIREMENTS) Our ADRs carry the CUSIP no. 256135203. proposed a dividend of ` 20/- on equity REGULATIONS, 2015 share of ` 5/-. The dividend, if declared by Sandeep Poddar the shareholders at the 35th annual general DESCRIPTION OF VOTING RIGHTS Company Secretary meeting (AGM) scheduled to be held on All equity shares issued by the company Tel: +91-40-4900 2222 30 July 2019, will be paid on or after carry equal voting rights. Fax: +91-40-4900 2999 5 August 2019. E-mail ID: [email protected] DEPOSITORIES ADR INVESTORS/INSTITUTIONAL BOOK CLOSURE DATE OVERSEAS DEPOSITORY OF ADRS INVESTORS/FINANCIAL ANALYSTS The dates of book closure are from J.P. Morgan Chase & Co. Amit Agarwal Wednesday, 17 July 2019 to Friday, P.O. Box 64504, St. Paul Investor Relations 19 July 2019 (both days inclusive) for the MN 55164-0504, USA Tel: +91-40-4900 2135 purpose of payment of dividend. Tel: +1-651-453 2128 Fax: +91-40-4900 2999 E-mail ID: [email protected] E-VOTING DATES INDIAN CUSTODIAN OF ADRS J.P. Morgan Chase Bank NA The cut-off date for the purpose of MEDIA India Sub-Custody, 6th Floor determining the shareholders eligible for Mitali Sarkar Paradigm B Wing, Mindspace, Malad (West) e-voting is Tuesday, 23 July 2019. Corporate Communications Mumbai 400 064, Maharashtra, India Tel: +91-40-4900 2121 Tel: +91-22-6649 2617 The e-voting commences on Friday, 26 Fax: +91-40-4900 2999 Fax: +91-22-6649 2509 July 2019 at 9.00 am IST and ends on E-mail ID: [email protected] E-mail ID: india.custody.client.service@ Monday, 29 July 2019 at 5.00 pm IST. jpmorgan.com

FINANCIAL CALENDAR TENTATIVE CALENDAR FOR DECLARATION OF FINANCIAL RESULTS IN FY2020 For the quarter ending 30 June 2019 Last week of July 2019 For the quarter and half-year ending 30 September 2019 Last week of October 2019 For the quarter and nine months ending 31 December 2019 Last week of January 2020 For the year ending 31 March 2020 Third week of May 2020 AGM for the year ending 31 March 2020 Last week of July 2020

FY2019 represents ﬁ scal year 2018-19, from 1 April 2018 to 31 March 2019, and analogously for FY2018 and other such labeled years.

68 Company Overview Statutory Reports Financial Statements Annual Report 2018-19

REGISTRAR AND TRANSFER AGENT Chart 1 on page 71 gives the movement of amended, to the RTA of the company. (RTA) FOR INDIAN SHARES our share price on NSE vis-à-vis NIFTY 50 Further, shareholders may cancel/vary their (COMMON AGENCY FOR DEMAT AND Index during FY2019. nomination already made, in form SH-14 by PHYSICAL SHARES) sending it to the RTA. Those holding shares Bigshare Services Private Limited (RTA) Chart 2 on page 71 gives the movement of in dematerialized form may contact their CIN: U99999MH1994PTC076534 our ADR price on NYSE vis-à-vis S&P ADR respective depository participant (DP) to 306, Right Wing, 3rd Floor, Amrutha Ville Index during FY2019. avail the nomination facility. Opp. Yashoda Hospital, Rajbhavan Road Hyderabad 500 082, Telangana, India Chart 3 on page 71 gives premium in EXCHANGE OF SHARE Tel: +91-40-2337 4967 percent on our ADR traded on NYSE CERTIFICATES Fax: +91-40-2337 0295 compared to the share price quoted at NSE Standard Equity Fund Limited (SEFL), E-mail ID: [email protected] during FY2019. Cheminor Drugs Limited (CDL), American Remedies Limited (ARL) merged with the PERSONS HOLDING OVER 1% OF SHAREHOLDING PATTERN AS ON company in the years 1995, 2000 and THE SHARES 31 MARCH 2019 2001 respectively. Also, during the year Table 1 gives the names of the persons who Tables 4 and 5 gives the data on 2001, the company sub-divided the face hold more than 1% of equity shares of the shareholding classifi ed on the basis of value of its equity shares of ` 10/- into ` 5/-. company as on 31 March 2019. category and distribution of ownership, Hence, the share certifi cates of the above respectively. three companies and old share certifi cates EQUITY HISTORY OF THE of ` 10/- face value are no longer valid. COMPANY DIVIDEND HISTORY The shareholders holding the share Table 2 lists equity history of the company Chart 4 on page 73 shows the dividend certifi cates of the above three companies or since incorporation of the company up to history of the company from the FY2009 of ` 10/- face value, are requested to submit 31 March 2019. to FY2019. those share certifi cates alongwith the demat account details including client master STOCK DATA NOMINATION FACILITY list, either to the company or to the RTA. Table 3 gives the monthly high/low and Shareholders holding physical shares may, On receipt and verifi cation of these share the total number of shares/ADRs traded if they so desire, send their nominations certifi cate(s), the shares will get credited to per month on the BSE, NSE and the NYSE in form SH-13 of the Companies (Share the demat account of the shareholders. during FY2019. Capital and Debentures) Rules, 2015, as

LISTING ON STOCK EXCHANGES AND STOCK CODES STOCK CODE DETAILS OF STOCK EXCHANGE EQUITY SHARES ADRs BSE Limited (BSE), P J Towers, Dalal Street, Fort, Mumbai 400 001, India 500124 - National Stock Exchange of India Ltd. (NSE), Exchange Plaza, Bandra-Kurla Complex, Bandra (E), DRREDDY-EQ - Mumbai 400 051, India New York Stock Exchange Inc. (NYSE), 11, Wall Street, New York, 10005, USA - RDY Notes: 1. Listing fees to the Indian stock exchanges for listing of equity shares have been paid for the FY2020. 2. Listing fees to the NYSE for listing of ADRs has been paid for the CY2019. 3. The stock code on Reuters is REDY.NS and on Bloomberg is DRRD:IN.

TABLE 1 PERSONS HOLDING 1% OR MORE OF THE EQUITY SHARES IN THE COMPANY AS ON 31 MARCH 2019(1) SL. NAME NO. OF SHARES % NO. 1 Dr. Reddy's Holdings Limited 41,325,300 24.88 2 First State Investments, Stewart Investors and their associates 1 1 ,838,598 7.13 3 Life Insurance Corporation of India and their associates 6,486,864 3.91 4 Blackrock Institutional Trust Company and their associates 6,063,519 3.65 5 Aditya Birla Sun Life Trustee Private Limited and their associates 3,418,357 2.06 6 Franklin Templeton Mutual Fund and their associates 2,193,760 1.32 (1) Does not include ADR holding.

Building a winning future 69 Dr. Reddy’s Laboratories Limited

EQUITY HISTORY OF THE COMPANY SINCE INCORPORATION OF THE COMPANY UP TO TABLE 2 31 MARCH 2019 DATE/ CANCELLED/ PARTICULARS ISSUED CUMULATIVE FINANCIAL YEAR EXTINGUISHED 24-Feb-84 Issue to promoters 200 200 22-Nov-84 Issue to promoters 243,300 243,500 14-Jun-86 Issue to promoters 6,500 250,000 09-Aug-86 Issue to public 1,116,250 1,366,250 30-Sep-88 Forfeiture of 100 shares 100 1,366,150 09-Aug-89 Rights issue 819,750 2,185,900 16-Dec-91 Bonus issue (1:2) 1,092,950 3,278,850 17-Jan-93 Bonus issue (1:1) 3,278,850 6,557,700 10-May-94 Bonus issue (2:1) 13,115,400 19,673,100 10-May-94 Issue to promoters 2,250,000 21,923,100 26-Jul-94 GDR underlying equity shares 4,301,076 26,224,176 29-Sep-95 Standard Equity Fund Limited shareholders on merger 263,062 26,487,238 30-Jan-01 Cheminor Drugs Limited shareholders on merger 5,142,942 31,630,180 30-Jan-01 Cancellation of shares held in Cheminor Drugs Limited 41,400 31,588,780 11-Apr-01 ADR underlying equity shares 6,612,500 38,201,280 09-Jul-01 GDR conversion into ADR 38,201,280 24-Sep-01 American Remedies Limited shareholders on merger 56,694 38,257,974 25-Oct-01 Sub-division of one equity share of ₹ 10/- into two equity 76,515,948 shares of ₹ 5/- 2004-05 Allotment pursuant to exercise of stock options 3,001 76,518,949 2005-06 Allotment pursuant to exercise of stock options 175,621 76,694,570 2006-07 Allotment pursuant to exercise of stock options 63,232 76,757,802 30-Aug-06 Bonus issue (1:1) 76,757,802 153,515,604 22-Nov-06 ADR underlying equity shares 12,500,000 166,015,604 29-Nov-06 ADR underlying equity shares (green shoe option) 1,800,000 167,815,604 2006-07 Allotment pursuant to exercise of stock options 96,576 167,912,180 2007-08 Allotment pursuant to exercise of stock options 260,566 168,172,746 2008-09 Allotment pursuant to exercise of stock options 296,031 168,468,777 2009-10 Allotment pursuant to exercise of stock options 376,608 168,845,385 2010-11 Allotment pursuant to exercise of stock options 407,347 169,252,732 2011-12 Allotment pursuant to exercise of stock options 307,614 169,560,346 2012-13 Allotment pursuant to exercise of stock options 276,129 169,836,475 2013-14 Allotment pursuant to exercise of stock options 272,393 170,108,868 2014-15 Allotment pursuant to exercise of stock options 272,306 170,381,174 2015-16 Allotment pursuant to exercise of stock options 226,479 170,607,653 Buyback of equity shares 5,077,504 165,530,149 2016-17 Allotment pursuant to exercise of stock options 211,564 165,741,713 2017-18 Allotment pursuant to exercise of stock options 169,194 165,910,907 2018-19 Allotment pursuant to exercise of stock options 155,041 166,065,948

SHARE TRANSFER SYSTEM 6(2)(a) of the Companies (Share Capital and 12 May 2015, delegated the power to All queries and requests relating to share Debentures) Rules, 2014, duplicate share issue duplicate share certifi cates, to the transfers/transmissions may be addressed certifi cates, in lieu of those that are lost or stakeholders’ relationship committee. to our RTA. destroyed, should only be issued with the prior consent of the board. However, the The stakeholders’ relationship committee To expedite the process of share transfers, Ministry of Corporate Aff airs vide its general attends to such requests at regular intervals. the company secretary has been delegated circular no. 19/2014, dated 12 June 2014, with the power to attend to the share has clarifi ed that the powers of the board We periodically review the operations transfer formalities at regular intervals. with regard to the issue of duplicate of our RTA. The number of shares share certifi cates can be exercised by a transferred/transmitted in physical form Pursuant to the provisions of Section 46 of committee of directors. Therefore, the during the last two fi nancial years are given the Companies Act, 2013 read with Rule board of directors, at its meeting held on in Table 6.

70 Company Overview Statutory Reports Financial Statements Annual Report 2018-19

MOVEMENT OF THE COMPANY’S SHARE PRICE ON NSE AND Pursuant to SEBI Notifi cation No. CHART 1 NIFTY 50 INDEX SEBI/LAD/NRO/GN/2018/24 dated 8 June 2018 and Press Release No: 49/2018 130 dated 3 December 2018, members 120 may please note that, with eff ect from 1 April 2019, transfer of shares (except 110 transmission and transposition of shares) 100 will be in dematerialised form only. Although, the shareholders can continue 90 to hold shares in physical form, they are requested to consider dematerializing their 80 shares. 70 DEMATERIALIZATION OF SHARES The company’s scrip forms part of the JUL-18 SEP-18 FEB-19 APR-18 JAN-19 JUN-18 DEC-18 OCT-18 MAY-18 AUG-18 NOV-18 MAR-19 compulsory dematerialization segment DR. REDDY'S SHARE PRICE NIFTY 50 INDEX for all investors with eff ect from Notes: 15 February 1999. To facilitate easy 1. All values are indexed to 100 as on 1 April 2018. access of the dematerialized system to the 2. Nifty 50 is a diversifi ed 50 stock index accounting for 12 sectors of the Indian economy. Nifty 50 is owned and managed by India Index Services and Products Ltd. (IISL), India’s specialized company focused upon investors, we have signed up with both the index as a core product. the depositories in India — the National Securities Depository Ltd. (NSDL) and the MOVEMENT OF THE COMPANY’S ADR PRICES AND S&P ADR Central Depository Services (India) Ltd. CHART 2 INDEX (CDSL) and has established connectivity with the depositories through its RTA. 130 Chart 5 on page 73 gives the 120 breakup of dematerialized shares 110 and shares in physical form as on 31 March 2019 compared with 100 31 March 2018. Dematerialization of 90 shares is done through RTA and the dematerialization process is generally 80 completed within 10 days from the date of receipt of a valid dematerialization request 70 along with the relevant documents. JUL-18JUL-18 SEP-18SEP-18 FEB-19FEB-19 APR-18APR-18 JAN-19 JUN-18JUN-18 DEC-18 OCT-18OCT-18 MAY-18MAY-18 AUG-18AUG-18 NOV-18NOV-18 MAR-19MAR-19 SECRETARIAL AUDIT DR. REDDY'S ADR PRICE S&P ADR INDEX Pursuant to Section 204 of the Companies Notes: Act, 2013 and corresponding Rule 9 of the 1. All values are indexed to 100 as on 1 April 2018. 2. The S&P ADR Index is based on the non-US stocks comprising the S&P Global 1200 traded in the US Companies (Appointment and Remuneration exchanges. For details of the methodology used to compute this index please visit www.adr.com. of Managerial Personnel) Rules, 2014, a secretarial audit for FY2019 was carried PREMIUM IN PERCENT ON COMPANY’S ADR TRADED ON out by Dr. K R Chandratre, a practicing CHART 3 NYSE VERSUS SHARE PRICE QUOTED AT NSE company secretary having more than three decades of experience (membership no. 5 FCS 1370 and certifi cate of practice no. 3 5144). The secretarial audit report forms 1 a part of this annual report. Further, we -1 comply with the applicable Secretarial -3 Standards issued by the Institute of -5 Company Secretaries of India. -7 -9 In addition to the above, for each quarter -11 of FY2019, a qualifi ed practicing company -13 secretary carried out the reconciliation of share capital audit to reconcile the total admitted share capital held with NSDL and JUL-18 SEP-18 FEB-19 APR-18 JAN-19 JUN-18 DEC-18 OCT-18 MAY-18 AUG-18 NOV-18 MAR-19 CDSL and the total issued and listed share capital. The reports confi rm that the total Note: Premium has been calculated on a daily basis using RBI reference exchange rate.

Building a winning future 71 Dr. Reddy’s Laboratories Limited

issued/paid-up share capital is in agreement QUERIES AND REQUESTS RECEIVED POSTAL BALLOT DETAILS with total number of shares in physical FROM SHAREHOLDERS IN FY2019 Table 9 gives voting details of special form and dematerialized form held with Table 7 gives details of the nature of resolution passed through postal ballot NSDL and CDSL. shareholder queries received and replied during FY2019. to during FY2019. Pending queries and OUTSTANDING ADRS AND THEIR requests were either received during PERSON WHO CONDUCTED THE IMPACT ON EQUITY SHARES the last week of March 2019 or were POSTAL BALLOT PROCESS Our ADRs are traded in the US on New pending due to non-receipt of information/ Mr. G Raghu Babu, company York Stock Exchange Inc. (NYSE) under documents from the shareholders. secretary in practice and partner of the ticker symbol ‘RDY’. Each ADR M/s. R & A Associates, company secretaries, is represented by one equity share. DATE AND VENUE OF LAST THREE Hyderabad (membership no. FCS 4448 As on 31 March 2019, there were ANNUAL GENERAL MEETINGS and certiﬁ cate of practice no. 2820) was approximately 59 registered holders and Table 8 gives the details of date, time, appointed as the scrutinizer for carrying 15,966 beneficial shareholders of ADRs location and business transacted through out the postal ballot process in a fair and evidencing 23,437,729 ADRs. special resolutions at last three annual transparent manner. general meetings.

TABLE 3 HIGH, LOW AND NUMBER OF SHARES/ADRS TRADED PER MONTH ON BSE, NSE AND NYSE DURING FY2019 BSE NSE NYSE MONTH NO. OF NO. OF HIGH LOW NO. OF HIGH (₹) LOW (₹) HIGH(₹) LOW(₹) SHARES SHARES (US$) (US$) ADRs(1) Apr-18 2,179.75 2,053.50 2,318,008 2,180.00 2,054.30 8,703,302 33.39 31.39 5,421,356 May-18 2,142.30 1,888.00 938,772 2,145.00 1,887.00 12,438,593 32.27 28.13 15,781,687 Jun-18 2,428.95 1,934.35 4,158,884 2,429.60 1,932.35 30,023,604 35.33 28.69 11,875,360 Jul-18 2,398.00 2,017.20 2,295,915 2,387.65 2,020.00 23,357,303 33.95 29.00 7,172,127 Aug-18 2,518.50 2,130.10 1,421,287 2,520.00 2,130.00 16,002,824 35.16 31.32 6,167,338 Sep-18 2,687.45 2,439.30 1,822,130 2,670.80 2,441.10 20,840,012 36.81 34.48 4,802,674 Oct-18 2,610.45 2,332.10 1,416,425 2,610.00 2,332.00 18,605,271 35.25 31.58 7,595,069 Nov-18 2,725.00 2,392.45 1,182,381 2,734.55 2,389.00 18,897,763 39.04 32.39 5,852,409 Dec-18 2,745.00 2,535.60 1,008,739 2,749.95 2,534.10 17,809,011 38.75 35.55 4,126,020 Jan-19 2,727.90 2,539.00 543,892 2,728.55 2,537.30 13,781,049 38.86 36.30 5,117,254 Feb-19 2,875.00 2,065.30 1,713,727 2,878.00 1,872.95 32,760,531 40.20 35.50 4,849,818 Mar-19 2,812.00 2,582.70 630,419 2,814.00 2,580.05 14,873,762 40.84 36.18 3,431,978 (1) One ADR is equal to one equity share.

TABLE 4 DISTRIBUTION OF SHAREHOLDING ON THE BASIS OF CATEGORY AS ON 31 MARCH 2019 AS ON 31 MARCH 2018 CATEGORY % CHANGE NO. OF SHARES % OF TOTAL NO. OF SHARES % OF TOTAL Promoters’ Holding(1) - Individuals 3,133,228 1.89 3,315,328 2.00 (0.11) - Companies 41,325,300 24.88 41,083,500 24.76 0.12 Sub-total 44,458,528 26.77 44,398,828 26.76 0.01 Indian ﬁ nancial institutions 8,200,552 4.94 9,322,776 5.62 (0.68) Banks 314,614 0.19 355,985 0.21 (0.02) Mutual funds/UTI 15,132,031 9.11 14,767,937 8.90 0.21 Foreign holdings - Foreign institutional investors/foreign 50,189,829 30.25 0.69 portfolio investors 51,371,769 30.94 - Non resident indians 1,751,508 1.05 1,819,954 1.10 (0.05) - ADRs 23,437,729 14.11 22,076,602 13.31 0.80 - Foreign nationals 11,821 0.01 11,040 0.01 - Sub-total 100,220,024 60.35 98,544,123 59.40 0.95 Indian public and corporates 21,387,396 12.88 22,967,956 13.84 (0.96) Total 166,065,948 100.00 165,910,907 100.00 (1) Change in percentage due to inter se transfer within promoter group, secondary market purchase by promoter and ESOP allotment.

72 Company Overview Statutory Reports Financial Statements Annual Report 2018-19

CHART 4 DIVIDEND HISTORY FY2009-19 (%) PROPOSAL TO CONDUCT POSTAL BALLOT FOR ANY MATTER IN THE ENSUING ANNUAL GENERAL FY2019 PROPOSED 400 MEETING FY2018 400 There is no proposal to conduct postal ballot for any matter in the ensuing annual FY2017 400 general meeting (AGM). FY2016 400 FY2015 400 PROCEDURE FOR POSTAL BALLOT In compliance with the Listing Regulations FY2014 360 and Sections 108, 110 and other applicable FY2013 300 provisions of the Companies Act, 2013, read with applicable Rules, the company FY2012 275 provides an electronic voting facility to all FY2011 225 its shareholders, to enable them to cast their votes electronically. The company FY2010 225 engages the services of NSDL for the FY2009 125 purpose of providing e-voting facility to all its shareholders. The shareholders have the option to vote either by physical ballot or e-voting.

BREAK UP OF SHARES IN ELECTRONIC AND PHYSICAL FORM The company dispatches the postal ballot CHART 5 AS ON 31 MARCH 2019 AND 31 MARCH 2018 (%) notices and forms along with self-addressed business reply envelope to its shareholders whose names appear on the register of 97.14 members/list of beneﬁ ciaries as on a cut-off

NSDL date. The postal ballot notice is sent to the 97.15 shareholders in electronic form to the e-mail ELECTRONIC - IDs registered with the DPs/RTA. 2.32 Voting rights are reckoned on the paid-up CDSL 2.12 value of the shares registered in the names

ELECTRONIC - of the shareholders as on the cut- off date. Shareholders desiring to exercise 0.54 2019 their votes by physical postal ballot forms are requested to return the forms duly 0.73 2018 PHYSICAL completed and signed, to the scrutinizer on or before the closing of the voting period. Shareholders desiring to exercise their votes by electronic mode are requested

TABLE 5 DISTRIBUTION OF EQUITY SHAREHOLDING ACCORDING TO OWNERSHIP AS ON 31 MARCH 2019 NO. OF % OF NO. OF % OF SHARES HELD SHAREHOLDERS SHAREHOLDERS SHARES HELD SHAREHOLDING 1 – 5,000 117,132 99.08 11,328,622 6.82 5,001 – 10,000 410 0.35 2,849,986 1.72 10,001 – 20,000 260 0.22 3,679,195 2.22 20,001 – 30,000 104 0.09 2,583,559 1.56 30,001 – 40,000 40 0.03 1,402,412 0.84 40,001 – 50,000 28 0.02 1,312,361 0.79 50,001 – 100,000 92 0.08 6,591,884 3.97 100,001 & above 152 0.13 112,880,200 67.97 Total (excluding ADRs) 118,218 100.00 142,628,219 85.89 Equity shares underlying ADRs(1) 1 0.00 23,437,729 14.11 Total 118,219 100.00 166,065,948 100.00 (1) Held by beneﬁ cial owners outside India.

Building a winning future 73 Dr. Reddy’s Laboratories Limited

to vote before close of business hours any person authorized by him, after the DISCLOSURE ON LEGAL on the last day of e-voting. The last date completion of scrutiny, and the consolidated PROCEEDINGS PERTAINING speciﬁ ed by the company for receipt of duly results of the voting by postal ballot are TO SHARES completed postal ballot forms or e-voting then announced. The results are also There are two pending cases relating to is deemed to be the date of passing of displayed on the company’s website disputes over title of the shares of the the resolution. www.drreddys.com, besides being company, in which the company has been communicated to the stock exchanges, made a party. These cases, however, are The scrutinizer submits his report to the depository and RTA. not material in nature. chairman of the board of directors or

TABLE 6 SHARES TRANSFERRED/TRANSMITTED IN PHYSICAL FORM FY2019 FY2018 Number of transfers/transmissions* 96 58 Number of shares 39,925 18,857 * Does not include 7,616 equity shares (103 folios) transferred to Investor Education and Protection Fund due to their dividend remaining unclaimed for FY2011-17.

TABLE 7 SHAREHOLDER QUERIES AND REQUESTS RECEIVED AND REPLIED TO IN FY2019 SL. OPENING CLOSING NATURE RECEIVED REPLIED NO. BALANCE BALANCE* 1 Change of address - 21 21 - 2 Request for revalidation and issue of duplicate dividend warrants 1 232 233 - 3 Request for sub-division of shares (exchange) - 63 63 - 4 Share transfers - 135 123 12 5 Transmission of shares - 26 26 - 6 Split/consolidation of shares - 4 4 - 7 Stop transfer - 52 52 - 8 Power of attorney registration ---- 9 Change of bank mandate - 808 808 - 10 Correction of name -981 11 Dematerialization of shares - 792 792 - 12 Rematerialization of shares - 4 4 - 13 Issue of duplicate share certiﬁ cates of Dr. Reddy's 6 87 83 10 14 Requests received from shareholders - 668 668 - 15 Complaints received through stock exchanges/SEBI etc. - 12 12 - 16 Claim of unclaimed share certiﬁ cates - 40 40 - * The company has since attended all the shareholders’ requests and queries which were pending as on 31 March 2019. The above table does not include shareholders’ disputes, which are pending in various courts.

TABLE 8 LAST THREE ANNUAL GENERAL MEETINGS YEAR DATE AND TIME LOCATION SPECIAL RESOLUTION(S) PASSED 2015-16 27 July 2016 Kaveri Ball Room, No special resolution proposed and passed at 9.30 AM Hotel Trident, HITEC City, Madhapur, Hyderabad 500 081 2016-17 28 July 2017 Kaveri Ball Room, No special resolution proposed and passed at 9.30 AM Hotel Trident, HITEC City, Madhapur, Hyderabad 500 081 2017-18 27 July 2018 The Ballroom, Approval for reappointment of Mr. Anupam Puri (DIN: 00209113) as an independent at 9.30 AM Hotel Park Hyatt, director for a second term of one year; Road No.2, Banjara Hills, Approval for Dr. Reddy’s Employees Stock Option Scheme, 2018 (2018 ESOS); Hyderabad 500 034 Grant of stock options to the employees of the subsidiary companies under 2018 ESOS; Implementation of 2018 ESOS through Dr. Reddy’s Employees ESOS Trust (Trust); and Authorisation to the Trust for secondary acquisition of equity shares for the purpose of stock options.

74 Company Overview Statutory Reports Financial Statements Annual Report 2018-19

UNCLAIMED DIVIDENDS/ INTEREST years or more shall be transferred by the Any corporate benefits accruing on such Pursuant to Section 125 of the company in the name of IEPF. shares, viz. bonus shares, split etc., shall Companies Act, 2013, unclaimed also be credited to unclaimed suspense dividend amounts for the FY2011 of During the year, company has transferred account, for a period of seven years and ` 7,030,361/- and debenture interest (transmitted) 7,616 equity shares held thereafter shall be transferred by the for the FY2012 ` 1,729,247/- has under 103 folios on which dividend company to IEPF, in accordance with been transferred to the general has not been paid or claimed for seven provisions of Section 124(5) and (6) of the revenue account of the Central consecutive years since FY2011 to the Companies Act, 2013 and Rules made Government/Investor Education and IEPF. thereunder. Protection Fund (IEPF). The company has sent individual notices Table 11 gives the details of the The dividends for the FY2012 and to the latest available addresses of the unclaimed shares as on 31 March 2019 interest on debentures for the FY2013 shareholders, whose dividends are lying held by the company. which are unclaimed for seven years will unpaid/unclaimed for FY2012 along with be transferred to IEPF established by the subsequent seven consecutive years', The voting rights on such unclaimed Central Government under Section 125 of dividend, advising them to claim the shares shall remain frozen till the rightful the Companies Act, 2013. Table 10 gives dividends on or before 14 August 2019. owner claims these shares. the transfer dates in this regard. It has also published a notice in newspapers inviting the shareholders’ NON-COMPLIANCE ON MATTERS Bonus debentures, issued by the attention. RELATING TO CAPITAL MARKETS company in the year 2011, matured on There has been no instance of non- 24 March 2014. These were redeemed Shareholders who have not claimed their compliance by the company on matters for cash at face value of ` 5/- each along dividends since 2011-12 can write to relating to capital markets for the last with third and final year’s interest. the company’s RTA or at the registered three years. office of the company on or before 14 Shareholders/debenture holders who August 2019 for making a valid claim have not claimed the dividend(s)/interest/ for the unclaimed dividends. If the FINANCIAL RESULTS ON THE redemption amount are, therefore, shareholders do not claim the unpaid COMPANY’S WEBSITE requested to do so before they are or unclaimed dividends and provide the The quarterly, half yearly and annual statutorily transferred to the IEPF. requisite documents on or before 14 results of the company are displayed on its August 2019, the shares held by them are website: www.drreddys.com. Presentations The shareholders/debenture holders who liable to be transferred to IEPF. to analysts, as and when made, are have not cashed their dividend/interest immediately placed on the website for the warrants nor claimed the redemption Any person, whose shares and unpaid/ beneﬁ t of the shareholders and public at amount on matured debentures are unclaimed dividends get transferred large. requested to immediately approach to the IEPF may claim the shares and Bigshare Services Private Limited, for unpaid/unclaimed dividends from the Besides, the company also regularly making payment through electronic IEPF in accordance with such procedure provides relevant information to the stock bank transfer. In cases, where bank and on submission of such documents exchanges as per the requirements of the details for making electronic payment as prescribed. Listing Regulations. are not available, or electronic payment instructions have failed, or rejected by the Details of equity shares liable to be INFORMATION ON DIRECTOR(S) bank, duplicate warrant(s)/demand draft(s) transferred to IEPF are available on the PROPOSED FOR REAPPOINTMENT/ may be issued in lieu of the original company’s website: www.drreddys.com APPOINTMENT warrant(s)/demand draft(s). The information is given in the Chapter DEALING WITH SECURITIES WHICH on Corporate Governance and Notice of The information on unclaimed dividend/ HAVE REMAINED UNCLAIMED 35th AGM. interest is available on the company’s Pursuant to Regulation 39(4) of SEBI website www.drreddys.com (Listing Obligation and Disclosure QUERIES AT ANNUAL GENERAL Requirements) Regulations, 2015 read MEETING TRANSFER OF UNDERLYING with schedule VI of the said Regulations, Shareholders desiring any information with SHARES TO INVESTOR EDUCATION the company has dematerialized shares regard to the accounts are requested to AND PROTECTION FUND (IEPF) which have been returned undelivered write to the company at an early date so Pursuant to Section 124(6) of the by postal authorities and shares as to enable the management to keep the Companies Act, 2013 read with Investor lying unclaimed after sub-division. information ready. The queries relating to Education and Protection Fund Authority The dematerialized shares are held in an operational and ﬁ nancial performance may (Accounting, Audit, Transfer and Refund) ‘unclaimed suspense account’ opened be raised at the AGM. Rules, 2016, as amended, all shares in with a depositary participant associated respect of which dividend has not been with NSDL. paid or claimed for seven consecutive

Building a winning future 75 Dr. Reddy’s Laboratories Limited

The company provides the facility 2014 and Secretarial Standard on Shareholders entitled to make requisition of an investor-helpdesk at the AGM. General Meeting (SS-2), an extraordinary for an EGM regarding any matter, shall be Shareholders may post their queries general meeting (EGM) of the company those who hold not less than one-tenth of relating to shares, dividends etc., at the may be called by a requisition made by the paid-up share capital of the company on investor-helpdesk. shareholders, either in writing or through the date of receipt of the requisition. electronic mode, at least 21 clear days PROCEDURE FOR CONVENING prior to the proposed date of such a PROCEDURE FOR NOMINATING A AN EXTRAORDINARY GENERAL meeting. Such a requisition, signed by the DIRECTOR ON THE BOARD requisitionists, shall set out the matters of MEETING Pursuant to Section 160 of the Companies consideration for which the meeting is to be Pursuant to the provisions of Section 100 Act, 2013, any person, or some called and it shall be sent to the registered of the Companies Act, 2013, Companies shareholders intending to propose such offi ce of the company. (Management and Administration) Rules,

TABLE 9 POSTAL BALLOT DETAILS VOTING DETAILS % OF VOTES VOTES CAST VOTES CAST DATE OF SPECIAL RESOLUTION NO. OF NO. OF POLLED ON IN FAVOUR AGAINST DECLARATION PASSED VOTES SHARES OUTSTANDING NO. OF NO. OF OF RESULTS POLLED % % SHARES VOTES VOTES Continuation of 166,060,861 126,540,262 76.20 123,253,522 97.40 3,286,740 2.60 24 March 2019 directorship of Dr. Bruce L A Carter (DIN: 02331774) and further re-appoint him as a non-executive independent director for the second term of 3 (three) consecutive years. Note: Postal ballot forms for 57 shares were considered as invalid due to incompleteness and/or signature mismatch.

DATES OF TRANSFER OF UNCLAIMED DIVIDEND ON SHARES/INTEREST AND REDEMPTION AMOUNT TABLE 10 ON BONUS DEBENTURES AMOUNT DATE OF FINANCIAL OUTSTANDING DUE FOR TYPE OF PAYMENT DECLARATION/ YEAR AS ON TRANSFER ON PAYMENT 31 MARCH 2019 2011-12 1st year debenture interest* 24-Mar-12 1,729,247.14 23-Mar-19 2011-12 Final dividend 20-Jul-12 7,675,298.75 26-Aug-19 2012-13 2nd year debenture interest 23-Mar-13 1,563,812.31 22-Mar-20 2012-13 Final dividend 31-Jul-13 8,487,795.00 30-Aug-20 2013-14 Debenture redemption and 3rd & ﬁ nal year interest 24-Mar-14 23,836,097.83 23-Mar-21 2013-14 Final dividend 31-Jul-14 9,946,152.00 30-Aug-21 2014-15 Final dividend 31-Jul-15 10,452,080.00 30-Aug-22 2015-16 Final dividend 27-Jul-16 11,608,100.00 30-Aug-23 2016-17 Final dividend 28-Jul-17 18,737,300.00 31-Aug-24 2017-18 Final dividend 27-Jul-18 17,281,980.00 30-Aug-25 * The unpaid 1st year debenture interest was transferred on 16 April 2019 to IEPF within a period of 30 days from the due date.

TABLE 11 UNCLAIMED SHARES AS ON 31 MARCH 2019 SL. NO. OF NO. OF PARTICULARS NO. FOLIOS SHARES i. No. of shareholders and the outstanding no. of unclaimed shares at the beginning of the year 2,101 417,932 ii. No. of shareholders who approached to claim the unclaimed shares during the year 124 51,175 iii. No. of shareholders who claimed and were given the unclaimed shares during the year 83 36,663 iv. Aggregate no. of shareholders and the outstanding no. of unclaimed shares at the end of the year 2,018 381,269 Note: The company has also dematerialized 32,574 shares under 318 folios in April 2019 in unclaimed suspense account. These shares were earlier claimed by the shareholders and the additional documents were not submitted by them.

76 Company Overview Statutory Reports Financial Statements Annual Report 2018-19

person for appointment as a director of COMMODITY PRICE RISK OR f) Not exceeded the borrowing or the company, shall deposit a signed notice FOREIGN EXCHANGE RISK investment limits; and signifying his/her candidature to the offi ce Appropriate disclosure on commodity g) Paid dividend to the shareholders, of a director, at the registered offi ce of the price or foreign exchange risk and hedging transferred the unpaid dividends and company, not less than 14 days before the activities is given in note 2.29 of the notes the underlying shares in respect of shareholders’ meeting. to the standalone fi nancial statement. which dividend has remained unpaid or unclaimed for seven consecutive years All directors’ nominations are considered CERTIFICATE FROM THE COMPANY to the Investor Education and Protection by the nomination, governance and SECRETARY Fund (IEPF) within the time limit and has compensation committee of the company’s also complied with the provisions of I, Sandeep Poddar, company secretary of board of directors, which entirely consists of the IEPF Authority (Accounting, Audit, Dr. Reddy’s Laboratories Limited, hereby independent directors. Transfer and Refund) Rules, 2016 confi rm that as on date of this certifi cate, as amended. the company has: INFORMATION ON MEMORANDUM a) Complied with the provisions of The certifi cate is given by the undersigned AND ARTICLES OF ASSOCIATION applicable rules and regulations framed according to the best of his knowledge The company’s memorandum and articles by the Securities and Exchange Board and belief and based on the available of association is available on its website: of India and the Companies Act, 2013, information and records, knowing that on www.drreddys.com as amended, eff ective as on date, and the faith and strength of what is stated applicable to the company; above, full reliance will be placed on it by b) Maintained all books of accounts and INVESTOR HANDBOOK/ the shareholders of the company. SHAREHOLDER SERVICES statutory registers prescribed under the Companies Act, 2013; Please refer to the Investor Handbook Sandeep Poddar c) Filed all forms and returns and furnished on the company’s website: Company Secretary all necessary particulars to the Registrar www.drreddys.com, for rights of of Companies and/ or authorities as shareholders, procedures related to Place : Hyderabad required under the Companies Act, transfer/dematerialization/rematerialisation/ Date : 17 May 2019 2013; transmission of shares, nomination in d) Conducted the board meetings, annual respect of shareholding, change of address, general meeting and postal ballot as unclaimed/unpaid dividend, shares per the Companies Act, 2013 and the underlying unpaid/unclaimed dividend, minutes thereof were properly recorded refund from IEPF, loss/misplacement of in the minutes books; certifi cate(s), sub-division of shares, share e) Eff ected share transfers and dispatched certifi cates of amalgamated companies, the certifi cates within the time limit power of attorney, registration of e-mail ID prescribed by various authorities; and registration of PAN/Bank details.

Building a winning future 77 Dr. Reddy’s Laboratories Limited

PLANT FACILITY LOCATIONS IN INDIA

ACTIVE PHARMACEUTICAL FORMULATIONS HYDERABAD PLANT 3 RESEARCH AND DEVELOPMENT INGREDIENTS (API) FACILITIES SY No. 41, FACILITIES IN INDIA Bachupally Mandal, INTEGRATED PRODUCT API HYDERABAD PLANT 1 Medchal-Malkajgiri District, Telangana, DEVELOPMENT ORGANISATION (IPDO) Plot No. 137, 138 & 146, Pin: 500 090 SY No. 42, 45, 46 & 54 IDA Bollaram, Jinnaram Mandal, Bachupally Mandal, Sangareddy District, Telangana, FORMULATIONS BADDI PLANT 1 Medchal-Malkajgiri District, Telangana, Pin: 502 325 Khol, Nalagarh, Nalagarh Road, Pin: 500 090 Solan District, Baddi, Himachal Pradesh, API HYDERABAD PLANT 2 Pin: 173 205 IPDO, BENGALURU Plot No. 75B, 105, 110, 111, 112 & 39-40, KIADB Industrial Area, Electronic City 121/3, IDA Bollaram, Jinnaram Mandal, FORMULATIONS BADDI PLANT 2 Phase II, Hosur Road, Bengaluru, Karnataka, Sangareddy District, Telangana, Village Mauja Thana, Nalagarh Baddi Road, Pin: 560 100 Pin: 502 325 Solan District, Baddi, Himachal Pradesh, Pin: 173 205 AURIGENE DISCOVERY API HYDERABAD PLANT 3 TECHNOLOGIES LIMITED (ADTL), Plot No. 116, FORMULATIONS VIZAG SEZ PLANT 1 BENGALURU IDA Bollaram, Jinnaram Mandal, Plot No. P1-P9, Phase III, Duvvada, VSEZ, 39-40, KIADB Industrial Area, Electronic City Sangareddy District, Telangana, Visakapatanam, Andhra Pradesh, Phase II, Hosur Road, Bengaluru, Karnataka, Pin: 502 325 Pin: 530 046 Pin: 560 100 API NALGONDA PLANT FORMULATIONS VIZAG SEZ PLANT 2 ADTL, HYDERABAD Peddadevulapally, Tripuraram Mandal, Plot No. Q1 to Q5, Phase III, Duvvada, VSEZ, Bollaram Road, Miyapur, Hyderabad, Nalgonda District, Telangana, Visakhapatnam, Andhra Pradesh, Telangana, Pin: 508 207 Pin: 530 046 Pin: 500 049 API SRIKAKULAM PLANT FORMULATIONS SRIKAKULAM PLANT TECHNOLOGY DEVELOPMENT Sy No. 5 to 9 (SEZ) CENTRE 1 Plot Nos. 5/1, 5/2, 5/3 & 5/4, APIIC, Sector No. 9-14 & 17-20, Devunipalavalasa Bollaram Road, Miyapur, Hyderabad, IDA Pydibheemavaram, Ransthalam Mandal, Village, Ranastalam Mandal, Telangana, Srikakulam District, Andhra Pradesh, Srikakulam District, Andhra Pradesh, Pin: 500 049 Pin: 532 409 Pin: 532 409 TECHNOLOGY DEVELOPMENT API SRIKAKULAM PLANT (SEZ) FORMULATIONS SRIKAKULAM PLANT CENTRE 2 PU1 & Developer (SEZ) UNIT II Plot 31A, IDA, Sector No. 28 & 34, Devunipalavalasa Sector No. 70, 71 & 73, Jeedimetla, Hyderabad, Telangana, Village, Ranastalam Mandal, Devunipalavalasa Village, Pin: 500 050 Srikakulam District, Andhra Pradesh, Ranastalam Mandal, Pin: 532 409 Srikakulam District, Andhra Pradesh, Pin: 532 409 FORMULATIONS MANUFACTURING FACILITIES FORMULATIONS INJECTABLES PLANT APIIC Industrial Estate, Pydibheemavaram FORMULATIONS HYDERABAD PLANT 1 Village, Ranastalam Mandal, Plot No. 137, 138 145 & 146, Srikakulum District, Andhra Pradesh, IDA Bollaram, Jinnaram Mandal, Pin: 532 409 Sangareddy District, Telangana, Pin: 502 320 BIOLOGICS Survey No. 47, Bachupally Mandal, FORMULATIONS HYDERABAD PLANT 2 Medchal-Malkajgiri District, Telangana, SY No. 42, 45, 46 & 54, Pin: 500 090 Bachupally Mandal, Medchal-Malkajgiri District, Telangana, Pin: 500 090

78 Company Overview Statutory Reports Financial Statements Annual Report 2018-19

PLANT FACILITY LOCATIONS OUTSIDE INDIA

ACTIVE PHARMACEUTICAL KUNSHAN ROTAM REDDY INGREDIENTS (API) FACILITIES PHARMACEUTICAL CO. LIMITED No.258, Huang Pu Jiang (M) Road, Kunshan API CUERNAVACA PLANT Development Zone, Jiangsu Province, Industrias Quimicas Falcon De Mexico P. R. China 215 300 S.A. de C.V., Carretera Federal Cuernavaca-Cuautla KM RESEARCH AND DEVELOPMENT 4.5 CIVAC, Jiutepec Morelos, Mexico 62578 FACILITIES API MIRFIELD PLANT TECHNOLOGY DEVELOPMENT Dr. Reddy’s Laboratories (EU) Ltd. CENTRE, CAMBRIDGE Steanard Lane, Chirotech Technology Limited Mirﬁ eld, West Yorkshire, WF 14, 8HZ, 410, Cambridge Science Park, United Kingdom Milton Road, Cambridge CB4 0PE, United Kingdom API MIDDLEBURGH PLANT Dr. Reddy’s Laboratories New York Inc. TECHNOLOGY DEVELOPMENT 1974 Route 145, P.O. Box 500, CENTRE, LEIDEN Middleburgh, Dr. Reddy’s Research and Development B V, New York 12122, USA Zernikedreef 12, 2333 CL Leiden, The Netherlands FORMULATIONS MANUFACTURING FACILITIES AURIGENE DISCOVERY TECHNOLOGIES, (MALAYSIA) SDN DR. REDDY’S LABORATORIES (UK) BHD LIMITED Level 2, Research Management & 6, Riverview Road, Beverly, East Yorkshire, Innovation Complex, HU 17 OLD, United Kingdom University of Malaya, Lembah Pantai 50603 Kuala Lumpur, Malaysia FORMULATIONS SHREVEPORT PLANT Dr. Reddy’s Laboratories Louisiana LLC 8800 Line Avenue, Shreveport, Louisiana 7110-6717, USA

Building a winning future 79 Dr. Reddy’s Laboratories Limited

BOARD’S REPORT

Dear Members, Revenues from Global Generics up by Revenues from Emerging Markets was 8% and stood at ` 123 billion. There was ` 28.9 billion, registering a year-on-year Your directors are pleased to present the growth across Emerging Markets and India, growth of 28%. Revenues from India stood 35th annual report for the year ended 31 revenues from North America Generics at ` 26.2 billion, registering a year-on-year March 2019. remained ﬂ at on a year-on-year basis. growth of 12%.

FINANCIAL HIGHLIGHTS Revenues from North America stood Revenues from PSAI stood at ` 24.1 billion, at ` 60 billion, and remained fl at on a registering a year-on-year growth of 10%. Table 1 gives the consolidated and year-on-year basis. This was largely on During the year, the company fi led nine drug standalone fi nancial highlights of the account of revenue contribution from master fi les (DMFs) in the US. company based on Indian Accounting new products launched, market share Standards (Ind AS) for FY2019 (i.e. from The above revenues are after excluding gains for existing products, and favorable 1 April 2018 to 31 March 2019) compared ‘other operating income’. foreign exchange movement off set by to the previous fi nancial year. higher price erosions in some of our key pharmaceutical products. DIVIDEND COMPANY AFFAIRS* Your directors are pleased to recommend The company’s consolidated total income During the year, the company launched a dividend of ` 20 (400%) for FY2019, for the year was ` 157.86 billion, which was several new products. These included on every equity share of ` 5/-. The up by 9% over the previous year. In US$ gSuboxone, gTepadina, gGleevec, gDiprivan recommended dividend is in line with the terms, this amounted to US$ 2.28 billion. etc. The company fi led 20 abbreviated dividend distribution policy of the company. Profi t before taxes (PBT) was ` 22.9 billion, new drug applications (ANDAs) in the USA. The dividend, if approved at the 35th annual representing a growth of 70% over the As of 31 March 2019, there were 110 general meeting (AGM), will be paid to those previous year. In US$ terms, this translated generic fi lings awaiting approval with the shareholders whose names appear on the to US$ 331 million. US Food and Drug Administration (USFDA), register of members of the company as of comprising 107 ANDAs and three NDAs end of the day on 16 July 2019. The company’s standalone total income for fi led under Section 505(b)(2) of the Federal the year was ` 108.64 billion, which was Food, Drug and Cosmetic Act (FD&C Act) in In terms of Regulation 43A of the SEBI up by 14% over the previous year. In US$, the USA. Of these 107 ANDAs, 60 are Para (Listing Obligations and Disclosure this amounted to US$ 1.57 billion. PBT was IVs, out of which 34 are believed to have Requirements) Regulations, 2015 (Listing ` 17 billion, which was up by 144% over the ‘First to File’ status. Regulations), the company’s dividend previous year. In US$ terms, this translated to US$ 246 million.

Table 1 Financial Highlights (` MILLION) CONSOLIDATED STANDALONE

FY2019 FY2018 FY2019 FY2018 Total income 157,857 144,362 108,639 95,633 Profi t before depreciation, amortization and tax 34,268 24,276 24,813 14,711 Depreciation and amortization 11,348 10,772 7,806 7,741 Profi t before tax 22,920 13,504 17,007 6,970 Tax expense 3,858 4,380 4,234 1,301 Profi t after tax 19,062 9,124 12,773 5,669 Share of profi t of equity accounted investees, net of tax 438 344 - - Net profi t for the year 19,500 9,468 12,773 5,669

Opening balance of retained earnings 96,247 90,771 90,740 89,063 Net proﬁ t for the year 19,500 9,468 12,773 5,669 Other comprehensive income/(loss) 255 - - - Dividend paid during the year (3,320) (3,316) (3,320) (3,316) Tax on dividend paid (682) (676) (682) (676) Transfer to general reserve - - - - Closing balance of retained earnings 112,000 96,247 99,511 90,740 * The conversion rate is considered as US$ 1 = ` 69.16.

Note: FY2019 represents ﬁ scal year 2018-19, from 1 April 2018 to 31 March 2019, and analogously for FY2018 and other such labelled years.

80 Company Overview Statutory Reports Financial Statements Annual Report 2018-19

distribution policy is attached as Annexure I along with its fi nancial statement, a separate MANAGEMENT DISCUSSION AND to the board’s report. statement containing the salient features of ANALYSIS the fi nancial statements of its subsidiaries A detailed report on the Management TRANSFER TO RESERVES and associates. Discussion and Analysis in terms of Regulation 34 of the Listing Regulations The company has not proposed to transfer Hence, the consolidated fi nancial is provided as a separate chapter in the any amount to the general reserve. statements of the company and all its annual report. subsidiaries and joint ventures, prepared SHARE CAPITAL in accordance with Ind AS 110 and 111 BOARD OF DIRECTORS AND KEY The paid-up share capital of your company as specifi ed in the Companies (Indian MANAGERIAL PERSONNEL increased by ` 0.78 million to ` 830.33 Accounting Standards) Rules, 2015, form Mr. Hans Peter Hasler resigned from the million in FY2019 due to allotment of part of the annual report. Moreover, a board on 14 June 2018 as independent 1,55,041 equity shares, on exercise of stock statement containing the salient features of director. The board places on record its options by eligible employees through the fi nancial statements of the company’s appreciation for the services rendered by the ‘Dr. Reddy's Employees Stock Option subsidiaries and joint ventures in the Mr. Hans Peter Hasler during his tenure as a Scheme, 2002’ and ‘Dr. Reddy’s Employees prescribed Form AOC-1, is attached as member of the board and its committees. ADR Stock Option Scheme, 2007’. Annexure II to the board’s report. This statement also provides details of the The shareholders of the company approved performance and fi nancial position of each FIXED DEPOSITS reappointment of Mr. Anupam Puri as an subsidiary and joint venture. The company has not accepted any independent director, for second term deposits covered under Chapter V of the of one year from 27 July 2018 up to In accordance with Section 136 of the Companies Act, 2013. Accordingly, no 26 July 2019, under Section 149 of the Companies Act, 2013, the audited fi nancial disclosure or reporting is required in respect Companies Act, 2013 at the 34th AGM held statements and related information of the of details relating to deposits. on 27 July 2018. company and its subsidiaries, wherever applicable, are available for inspection Mr. Leo Puri, Ms. Shikha Sharma and CHANGE IN THE NATURE OF during regular business hours at our Mr. Allan Oberman were appointed as BUSINESS, IF ANY registered offi ce in Hyderabad, India. additional directors of the company, During the year, there was no change in the These are also available on the company’s categorized as Independent with eff ect nature of business of the company or any of website, www.drreddys.com. from 25 October 2018, 31 January 2019 its subsidiaries. and 26 March 2019 respectively. The board PARTICULARS OF LOANS, recommends appointment of Mr. Leo Puri, MATERIAL CHANGES AND GUARANTEES OR INVESTMENTS Ms. Shikha Sharma and Mr. Allan Oberman COMMITMENTS AFFECTING The company makes investments as independent directors under Section THE FINANCIAL POSITION OF or extends loans/guarantees to its 149 of the Companies Act, 2013 for a THE COMPANY wholly-owned subsidiaries for their business term of fi ve years each with eff ect from There have been no such changes. purposes. Details of loans, guarantees and 25 October 2018, 31 January 2019 and investments covered under Section 186 of 26 March 2019, respectively for approval SUBSIDIARIES AND ASSOCIATES the Companies Act, 2013, along with the of the shareholders at the forthcoming 35th purpose for which such loan or guarantee AGM scheduled on 30 July 2019. The company had 52 subsidiaries and two was proposed to be utilized by the recipient, joint venture companies as on form part of the notes to the fi nancial Further, the shareholders of the company 31 March 2019. During FY2019, Dr. Reddy's statements provided in this annual report. approved the continuation of directorship Laboratories (Thailand) Limited and of Dr. Bruce L A Carter, aged 75 years Dr. Reddy's Laboratories Philippines Inc. under Regulation 17(1A) of the Listing have become subsidiary companies. CORPORATE GOVERNANCE AND Regulations and also reappointed him as Pursuant to sale of all the issued and ADDITIONAL SHAREHOLDERS’ a non-executive independent director of outstanding membership interests in INFORMATION the company for a second term of three the antibiotic manufacturing facility at A detailed report on the corporate consecutive years from 31 July 2019 up Tennessee, USA, Dr. Reddy’s Laboratories governance systems and practices of the to 30 July 2022, by passing a special Tennessee, LLC ceased to be a subsidiary company is given in a separate chapter resolution through postal ballot. during the year. of this annual report. Similarly, other information for shareholders is provided in The terms of Mr. Sridar Iyengar and Section 129(3) of the Companies Act, 2013 the Chapter on Additional Shareholders’ Ms. Kalpana Morparia, independent states that where the company has one or Information. A certifi cate from the statutory directors, end at the forthcoming 35th AGM. more subsidiaries, it shall, in addition to its auditors of the company confi rming The board recommends reappointment fi nancial statements, prepare a consolidated compliance with the conditions of corporate of Mr. Iyengar and Ms. Morparia, as fi nancial statement of the company and governance is attached to the Chapter on independent directors under Section of all subsidiaries in the same form and Corporate Governance. 149 of Companies Act, 2013 for another manner as that of its own and also attach term of four and fi ve years, respectively,

Building a winning future 81 Dr. Reddy’s Laboratories Limited

for approval of the shareholders at the In accordance with Section 178(3) of risk management (ERM) function helps forthcoming 35th AGM scheduled on the Companies Act, 2013, Regulation management and the board to periodically 30 July 2019. 19(4) of the Listing Regulations and on prioritize, review and measure business recommendations of the company’s risks against a pre-determined risk appetite, In accordance with Section 149(7) of the nomination, governance and compensation and their suitable response, depending on Companies Act, 2013, each independent committee, the board adopted a whether such risks are internal, strategic director has confi rmed to the company remuneration policy for directors, KMP, or external. that he or she meets the criteria of senior management and other employees. independence laid down in Section 149(6) The policy is attached in the Chapter on During FY2019, focus areas of risk of the Companies Act, 2013 and Regulation Corporate Governance. management committee included progress 16(1)(b) of the Listing Regulations. on cyber security, data privacy, quality and NUMBER OF BOARD MEETINGS regulatory, geo-political risk, compliance, Mr. Anupam Puri completes his second The board of directors met fi ve times during patent infringement and other operating risk term as an independent director. Dr. Omkar the year. In addition, an annual board retreat exposures. Goswami retires from the board of the was held to discuss strategic matters. company as independent director at 35th Details of board meetings are given in the ADEQUACY OF INTERNAL AGM to be held on 30 July 2019, and Chapter on Corporate Governance. FINANCIAL CONTROL SYSTEMS does not seek reappointment. The board The company has in place adequate internal wishes them well, and places on record its AUDIT COMMITTEE fi nancial controls with reference to its appreciation for their work over the long The audit committee of the board of fi nancial statements. These controls ensure period of time that they have served as the directors consists entirely of independent the accuracy and completeness of the directors of the company. directors. Presently, the committee accounting records and the preparation of comprises Mr. Sridar Iyengar (chairman), reliable fi nancial statements. Mr. G V Prasad, retires by rotation at the Dr. Omkar Goswami, Mr. Bharat N Doshi forthcoming 35th AGM and being eligible, and Ms. Shikha Sharma. Further details seeks reappointment. can be seen in the Chapter on Corporate DIRECTORS’ RESPONSIBILITY Governance. The board has accepted STATEMENT Brief profi les of Mr. Sridar Iyengar, all recommendations made by the audit In terms of Section 134(5) of the Companies Ms. Kalpana Morparia, Mr. Leo Puri, committee during the year. Act, 2013, your directors state that: Ms. Shikha Sharma, Mr. Allan Oberman and 1. applicable accounting standards have Mr. G V Prasad are given in the Chapter BUSINESS RISK MANAGEMENT been followed in the preparation of the on Corporate Governance and the Notice annual accounts; The company has a risk management convening the 35th AGM for reference of 2. accounting policies have been selected committee of the board, consisting entirely the shareholders. and applied consistently. Judgments of independent directors, and chaired and estimates made are reasonable by Dr. Omkar Goswami. Details of the There is no change in KMP during the year and prudent, so as to give a true and committee and its terms of reference under review. fair view of the state of aff airs of the are set out in the Chapter on Corporate company at the end of the FY2019 and Governance. BOARD EVALUATION of the profi t of the company for that As per provisions of the Companies period; The audit and risk management committees Act, 2013 and Regulation 17(10) of the 3. proper and suffi cient care has been review key risk elements of the company’s Listing Regulations, an evaluation of the taken to maintain adequate accounting business, fi nance, operations and performance of the board, its committees records in accordance with the compliance, and respective mitigation and members was undertaken. For details, provisions of the Act for safeguarding strategies. The risk management committee please see the Chapter on Corporate the assets of the company and for reviews key strategic, business, compliance Governance in this annual report. preventing and detecting fraud and and operational risks, while issues around other irregularities; ethics and fraud, internal control over APPOINTMENT OF DIRECTORS AND 4. annual accounts have been prepared on fi nancial reporting (ICOFR), as well as REMUNERATION POLICY a going concern basis; process risks and their mitigation are The assessment and appointment of 5. adequate internal fi nancial controls reviewed by the audit committee. members to the board is based on a for the company to follow have been combination of criterion that includes ethics, laid down and these are operating The company’s fi nance, investment and personal and professional stature, domain eff ectively; and risk management council (FIRM council) expertise, gender diversity and specifi c 6. proper and adequate systems have is a management level committee which qualifi cations required for the position. been devised to ensure compliance with operates under a charter and focuses A potential board member is also assessed the provisions of all applicable laws and on risks associated with the company’s on the basis of independence criteria these systems are operating eff ectively. business. The FIRM council periodically defi ned in Section 149(6) of the Companies reviews matters pertaining to risk Act, 2013 and Regulation 16(1)(b) of the management, compliance, ethics and Listing Regulations. fraud. Additionally, the enterprise wide

82 Company Overview Statutory Reports Financial Statements Annual Report 2018-19

RELATED PARTY TRANSACTIONS SECRETARIAL AUDITOR BOARD’S RESPONSE ON In accordance with Section 134(3)(h) of the Pursuant to Section 204 of the Companies AUDITORS' QUALIFICATIONS, Companies Act, 2013 and Rule 8(2) of the Act, 2013 and the Companies (Appointment RESERVATIONS OR ADVERSE Companies (Accounts) Rules, 2014, the and Remuneration of Managerial Personnel) REMARKS OR DISCLAIMERS MADE particulars of contracts or arrangements Rules, 2014, Dr. K R Chandratre, practicing There are no qualifi cations, reservations entered into by the company with related company secretary (membership no. FCS or adverse remarks made by the statutory parties referred to in Section 188(1) of 1370 and certifi cate of practice no. 5144) auditors in their report, or by the practicing the Companies Act, 2013 in Form AOC-2 was appointed to conduct the secretarial company secretary in the secretarial audit is attached as Annexure III. All such audit of the company for FY2019. The report. During the year, there were no contracts or arrangements are in the secretarial audit report for FY2019 is instances of frauds reported by auditors interest of the company. Details of related attached as Annexure IV. under Section 143(12) of the Companies party disclosures form part of the notes to Act, 2013. the fi nancial statements provided in this Based on the consent received annual report. from Dr. K R Chandratre, and on the SIGNIFICANT AND MATERIAL recommendations of the audit committee, ORDERS PASSED BY THE COURTS/ VIGIL MECHANISM/WHISTLE- the board has appointed him as the REGULATORS/TRIBUNALS secretarial auditor of the company BLOWER/OMBUDSPERSON POLICY On 25 August, 2017, a securities class for FY2020. The company has an ombudsperson action lawsuit was fi led against the policy (whistle-blower/vigil mechanism) company, its Chief Executive Offi cer (CEO) to report concerns. The vigil mechanism COST AUDITORS and its Chief Financial Offi cer (CFO) in the consists of a hotline — namely, a dedicated Pursuant to Section 148(1) of the United States District Court for the District of e-mail ID and a phone number. The Companies Act, 2013 read with the relevant New Jersey. The company’s Co-Chairman, ombudsperson policy safeguards against rules made thereunder, the company its Chief Operating Offi cer (COO) of the time retaliation of those who use this mechanism. maintains the cost audit records in respect (since retired), and Dr. Reddy’s Laboratories, The audit committee chairperson is the of its pharmaceutical business. Inc., were subsequently named as chief ombudsperson. The policy also defendants in the case. The operative provides access to the chairperson of On the recommendation of the audit complaint alleges that the company made the audit committee for raising concerns. committee, the board has appointed false or misleading statements or omissions Details of the policy are available on the M/s. Sagar & Associates, cost accountants in its public fi lings, in violation of the US weblink: www.drreddys.com/investors/ (fi rm registration no. 000118) as federal securities laws; that the company’s governance/ombudsperson-policy. cost auditors of the company for the share price dropped and its investors FY2020 at a remuneration of ` 7 lakh were aff ected. STATUTORY AUDITORS plus reimbursement of out-of-pocket expenses at actuals and applicable taxes. On 21 March 2019, the District Court issued M/s. S R Batliboi & Associates LLP, The provisions also require that the its decision (dated 20 March 2019) granting Chartered Accountants (fi rm registration remuneration of the cost auditors be ratifi ed in part and denying in part the motion to no. 101049W/E300004) were appointed by the shareholders. As a matter of record, dismiss. Pursuant to that decision, the Court as statutory auditors of the company at relevant cost audit reports for FY2018 were dismissed the plaintiff ’s claims on 17 out of the 32nd AGM held on 27 July 2016, fi led with the Central Government on 23 the 22 alleged misstatements/omissions. for a period of fi ve years commencing August 2018, within the stipulated timeline. from the conclusion of 32nd AGM till the The cost audit report for FY2019 will also The company believes that all the asserted conclusion of the 37th AGM, subject to be fi led within the timeline. claims, including the remaining fi ve out ratifi cation by shareholders every year, of 22, are without merit and intends as may be applicable. However, the to vigorously defend itself against the Ministry of Corporate Aff airs (MCA) in its SECRETARIAL STANDARDS allegations. At this point, any liability notifi cation dated 7 May 2018 has omitted In terms of Section 118(10) of the that may arise on account of this claim is the requirement under the fi rst proviso to Companies Act, 2013, the company unascertainable. Accordingly, no provision Section 139 of the Companies Act, 2013 complies with Secretarial Standards 1 has been made in the consolidated fi nancial and Rule 3(7) of the Companies (Audit and and 2, relating to the ‘Meetings of the statements of the company. Auditors) Rules, 2014, regarding ratifi cation Board of Directors’ and ‘General Meetings’ of appointment of statutory auditors by respectively as specifi ed by the Institute shareholders at every subsequent AGM. of Company Secretaries of India and INFORMATION REQUIRED UNDER approved by the Central Government. The SEXUAL HARASSMENT OF WOMEN Consequently, M/s. S R Batliboi & Associates company has also voluntarily adopted the AT WORKPLACE (PREVENTION, LLP, chartered accountants, continue to be recommendatory Secretarial Standard-3 PROHIBITION AND REDRESSAL) the statutory auditors of the company till on ‘Dividend’ and Secretarial Standard-4 ACT, 2013 the conclusion of 37th AGM, as approved on ‘Report of the Board of Directors’ The company has an apex complaints by shareholders at 32nd AGM held on issued by the Institute of Company committee and an internal complaints 27 July 2016. Secretaries of India. committee which operate under a defi ned redressal system for complaints pertaining to sexual harassment of women at the

Building a winning future 83 Dr. Reddy’s Laboratories Limited

workplace. Details are available in the EMPLOYEES STOCK OPTION available for inspection at the registered principle 3 of the Business Responsibility SCHEMES offi ce of the company during business Report forming a part of this annual During the year, the company has hours on working days up to the date of the report. formulated and implemented ‘Dr. Reddy’s forthcoming 35th AGM. Any shareholder Employees Stock Option Scheme, 2018’ interested in obtaining a copy thereof CORPORATE SOCIAL and established Dr. Reddy’s Employees may write to the company secretary in RESPONSIBILITY (CSR) ESOS Trust for its implementation and this regard. administration. Both the Scheme and As per Section 135 of the Companies Act, implementation of the scheme through Trust 2013, the company has a board-level CSR CONSERVATION OF ENERGY, were approved by the shareholders at the committee consisting of Mr. Bharat N Doshi TECHNOLOGY ABSORPTION, 34th AGM of the company. (chairman), Mr. G V Prasad and Mr. K Satish FOREIGN EXCHANGE EARNINGS Reddy. The company’s CSR policy provides AND OUTGO There has been no change in the a constructive framework to review and The particulars as prescribed under Section ‘Dr. Reddy’s Employees Stock Option organize our social outreach programs 134(3)(m) of the Companies Act, 2013, read Scheme, 2002’, the ‘Dr. Reddy’s Employees in health, livelihood and education. with Rule 8(3) of the Companies (Accounts) ADR Stock Option Scheme, 2007’and During the year, the committee monitored Rules, 2014 are attached as Annexure VII. Dr. Reddy’s Employees Stock Option implementation and adherence to the Scheme, 2018’ (collectively referred as CSR policy. Details of the CSR policy and ‘the schemes’). ANNUAL RETURN initiatives taken by the company during Details forming part of the extract of the the year are available on the company’s The schemes are in compliance with the annual return in form MGT-9 are attached as website, www.drreddys.com. The report on SEBI (Share Based Employee Benefi ts) Annexure VIII. CSR activities is attached as Annexure V. Regulations, 2014. ACKNOWLEDGMENT BUSINESS RESPONSIBILITY Details are available on the company’s Your directors place on record their sincere REPORT website: www.drreddys.com/media appreciation for the signifi cant contribution A detailed Business Responsibility Report as /904448/esop_details.pdf made by its employees through their required under Regulation 34 of the Listing The details also form part of note 2.23 of dedication, hard work and commitment, as Regulations, is given as a separate section the notes to accounts of the standalone also for the trust reposed on the company in this annual report. fi nancial statements. by the medical fraternity and patients. The board of directors also acknowledge the TRANSFER OF UNPAID AND PARTICULARS OF EMPLOYEES support extended by the analysts, bankers, UNCLAIMED AMOUNTS TO Disclosures pertaining to remuneration and government agencies, media, customers, INVESTOR EDUCATION AND other details as required under Section suppliers, shareholders and investors PROTECTION FUND (IEPF) 197(12) of the Companies Act, 2013, at large. Pursuant to the provisions of the Companies read with Rule 5(1) of the Companies Act, 2013, read with IEPF Authority (Appointment and Remuneration of It looks forward to your continued support (Accounting, Audit, Transfer and Refund) Managerial Personnel) Rules, 2014 are in the company’s endeavor to accelerate Rules, 2016, as amended, declared attached as Annexure VI. access to innovative and aff ordable dividends which remained unpaid or medicines because Good Health Can’t Wait. unclaimed for a period of seven years have In terms of Section 197(12) of the been transferred by the company to the Companies Act, 2013, read with Rule 5(2) For and on behalf of the board of directors IEPF, which has been established by the and 5(3) of the Companies (Appointment Central Government. and Remuneration of Managerial Personnel) K Satish Reddy Rules, 2014, a statement showing the Chairman The above-referred rules also mandate names and other particulars of the transfer of shares on which dividend are employees drawing remuneration in excess Place : Hyderabad lying unpaid or unclaimed for a period of limits set out in said rules forms part of Date : 17 May 2019 of seven consecutive years to IEPF. The the annual report. company has issued individual notices to the shareholders whose equity shares are Considering the fi rst proviso to Section liable to be transferred to IEPF, advising 136(1) of the Companies Act, 2013, the them to claim their dividend on or before annual report, excluding the aforesaid 14 August 2019. Details of transfer of information, is being sent to the unpaid and unclaimed amounts to IEPF shareholders of the company and others are given in the Chapter on Additional entitled thereto. The said information is Shareholders' Information.

84 Company Overview Statutory Reports Financial Statements Annual Report 2018-19

ANNEXURE-I

DIVIDEND DISTRIBUTION POLICY The dividend shall be declared/paid only Subject to per share amount rounding off (Originally approved on 18 May 2009 and out of the profi ts of the company after to nearest 25 paise and further subject modifi ed by the board of directors at their providing for depreciation in accordance to percentage being adjusted to nearest meeting held on 25 October 2016) with the provisions of the law. multiple of 5. The Company before declaration of KEY HIGHLIGHTS any dividend in any fi nancial year, may V. PARAMETERS TO BE CONSIDERED Dividend payout would be subject to transfer such percentage of its profi t BEFORE DECLARING DIVIDEND profi tability under Standalone Financials for that fi nancial year to the general The major internal and external factors Statements prepared under Indian reserve. for deciding on dividend payment are: Accounting Standard (IND-AS) 1. Current year’s earnings Special dividend, if any, to be outside However, in case of inadequacy or absence 2. Past dividend pattern the scope of this policy but would be of profi ts in any year, a maximum of 10% of 3. Liquidity – Cash fl ow governed by the provisions under the paid-up capital can be declared as dividend, 4. Repayment/Pre-payment of Companies Act, 2013 subject to other provisions contained in the borrowing Applicable to Dr. Reddy’s Laboratories Companies (Declaration and Payment of 5. Expected Future Earnings Limited, India only and not its Dividend) Rules, 2014. 6. Capital Expenditure Requirements subsidiaries (Retained earnings) requiring The SEBI (Listing Obligations and Disclosure ploughing back of profi ts i.e. INTRODUCTION Requirements) Regulations, 2015, as future capital expenditure program The board of directors of Dr. Reddy’s amended, requires a Company to disclose including Laboratories Limited (Dr. Reddy’s or the its dividend distribution policy in its annual a) New projects company), aims to grow the business lines report and on its website. b) Expansion of capacities of of the company and enhance the rate of existing units return on investments of the shareholders. I. DECLARATION c) Renovation/Modernizations They present the dividend distribution The declaration of dividend would be d) Acquisition of brands/businesses policy, considering: subject to compliance with applicable e) Major Repairs & Maintenance a) Preservation of a balance between the provisions of the Companies Act, 2013 7. Likelihood of crystallization of expectations of its shareholders and and Rules made there under, if any. contingent liabilities, if any company’s own need to grow, and 8. Contingency Fund b) The profi tability of the company. II. LOSSES 9. Sale of brands/businesses Before declaring any dividend, the 10. Social/Geo-political factors/risks The policy is intended to ensure a regular losses, if any, of any previous year(s) 11. Regulatory or proposed regulatory dividend payout for maximizing the must be set off against the profi ts of requirements shareholder’s wealth with an objective to the company for the current year or 12. Currency risk distribute a regular dividend through an previous years. interim or fi nal dividend or a combination Prior to declaration/recommendation of both. III. DECLARATION OF DIVIDEND OUT of any dividend as per this policy, the OF RESERVES company may consider any applicable The annual dividend rate would be The declaration of dividend out of covenants/conditions or restrictions recommended by the board of directors and reserves or accumulated profi t & loss imposed by any lenders, JV partners of the could vary in order to refl ect the underlying account may be as per the provisions company or its subsidiaries. The Company growth of the company and to maintain a of the Companies Act, 2013 and Rules may decide to retain earnings in entirety for regular dividend payment. made thereunder, if any. a particular year(s) for its growth/expansion, consequently resulting in shareholders’ APPLICABILITY IV. AMOUNT OF DIVIDEND wealth creation. This policy is a guiding principle for The board may endeavor to recommend Dr. Reddy’s Laboratories Limited, India dividends considering: VI) TIMING a) Company’s need for Capital for its 1. INTERIM DIVIDEND STATUTORY PROVISIONS growth/expansion plans; and The board may declare the interim Under the Companies Act, 2013 and b) Positive Cash Flow dividend, based on review of Rules made there under, a company profi ts earned during the current shall declare or pay dividend, for any The amount of maximum dividend payout year - to date. fi nancial year, only out of the profi ts of (including interim dividend) is expected the company for that fi nancial year. The to be up to 20% of the cash profi t under The interim dividend may be following points set out the statutory Consolidated Financial Statement prepared declared during the tenure of the obligations of a company/requirements under Indian Accounting Standards fi nancial year i.e. normally at the under the Companies Act, 2013 with (IND-AS). time of reviewing and approving the respect to declaration/payment of dividend. quarterly/half-yearly fi nancial results. [Section 123].

Building a winning future 85 Dr. Reddy’s Laboratories Limited

2. FINAL DIVIDEND VII) CLASSES OF SHARES from time to time shall be borne by the The board may recommend the fi nal At present, the issued and paid-up respective shareholders and if required dividend, subject to the approval of share capital of the company comprises under the then prevalent Income Tax the members of the company, based only of equity shares. As and when the laws, the payment shall also be subject on profi tability of the company as company issues any other class(es) to deduction of tax at source. per the annual audited fi nancial of shares, the board of directors may statements. The fi nal dividend may suitably declare dividend on such IX) PERIODIC REVIEW OF THIS POLICY be recommended once in a year class(es) in accordance with the AMENDMENTS and shall be subject to the approval provisions of the Companies Act, 2013. The board may amend, modify, repeal of the members of the company at or waive any of the stipulations of this their meeting held for the purpose. VIII) TAXATION Policy at any time, as it determines The company shall be responsible for necessary or appropriate, in the In addition to the above, the payment of Dividend Distribution Tax as exercise of its judgment or fi duciary board of directors of the company per the provisions of Income Tax Act, duties and as per the provisions of the may also consider declaration of 1961 or such other amendments from Companies Act. any special dividend, on special time to time. occasions, as and when they may K Satish Reddy deem fi t, subject to provisions of However, the Income Tax liability, if such Chairman the Companies Act, 2013, Rules is applicable, on the dividend earned made thereunder and other relevant by the shareholders under the Income Place : Hyderabad requirements, if any. Tax Act, 1961 or such other amendment Date : 17 May 2019

ANNEXURE-II

FORM AOC-1 (Statement pursuant to ﬁ rst proviso to sub-Section (3) of Section 129 read with Rule 5 of Companies (Accounts) Rules, 2014) (Statement containing salient features of the ﬁ nancial statement of subsidiaries/associate companies/joint ventures)

Part "A" : Subsidiaries All amounts in Indian Rupees millions,except share data and where otherwise stated AS AT 31 MARCH 2019 FOR THE YEAR ENDED 31 MARCH 2019 OTAL EXPENSE NET OTAL OF OTHER INCOME) OF OTHER BEFORE TAXATION PROFIT / (LOSS) FOR TAXATION PROVISION AFTER TAXATION PROFIT / (LOSS) PROPOSED DIVIDEND REPORTING PERIOD FOR THE REPORTING SUBSIDIARY OF INCORPORATION/ DATE ACQUISITION % OF SHAREHOLDING CURRENCY REPORTING RATE EXCHANGE SHARE CAPITAL & SURPLUS RESERVES LIABILITIES OTHER EQUITY AND LIABILITIES TOTAL ASSETS TOTAL INVESTMENTS* TURNOVER NET EXPENSE (T SL. NO. NAME OF THE SUBSIDIARY 1 Aurigene Discovery Technologies 31-03-19 26-09-07 100% MYR 16.94 16 14 2 32 32 23 26 24 2 - 2 - (Malaysia) SDN BHD 2 Aurigene Discovery Technologies Inc. 31-03-19 29-04-02 100% USD 69.16 257 (256) - 1 1 ------3 Aurigene Discovery Technologies Limited 31-03-19 10-08-01 100% INR 1.00 905 (535) 2,438 2,808 2,808 1,591 2,112 1,462 650 189 461 - 4 beta Institut gemeinnützige GmbH(4) 31-03-19 15-02-06 100% EUR 77.67 5 1 3 9 9 - - 1 (1) - (1) - 5 betapharm Arzneimittel GmbH(4) 31-03-19 15-02-06 100% EUR 77.67 60 11 7,205 7,276 7,276 - 6,665 6,625 40 - 40 - 6 Cheminor Investments Limited 31-03-19 23-01-90 100% INR 1.00 1 - - 1 1 ------7 Chirotech Technology Limited 31-03-19 28-04-08 100% GBP 90.53 1,060 57 149 1,266 1,266 - - (25) 25 5 20 - 8 DRL Impex Limited 31-03-19 18-08-86 100% INR 1.00 760 (762) 16 14 14 3 ------9 Dr. Reddy’s Bio-Sciences Limited 31-03-19 09-07-03 100% INR 1.00 540 (283) 70 327 327 - - 38 (38) 2 (40) - 10 Dr. Reddy’s Farmaceutica Do Brasil Ltda. 31-03-19 20-07-00 100% BRL 17.75 818 (1,117) 1,448 1,149 1,149 - 1,545 1,361 184 (145) 329 - 11 Dr. Reddy’s Laboratories (Australia) Pty. 31-03-19 07-06-06 100% AUD 49.02 35 (339) 668 364 364 - 676 626 50 12 38 - Limited 12 Dr. Reddy’s Laboratories (Canada) Inc. 31-03-19 29-08-13 100% CAD 51.54 - 300 343 643 643 - 1,505 1,276 229 36 193 -

86 Company Overview Statutory Reports Financial Statements Annual Report 2018-19

All amounts in Indian Rupees millions,except share data and where otherwise stated AS AT 31 MARCH 2019 FOR THE YEAR ENDED 31 MARCH 2019 OTAL EXPENSE NET OTAL SL. NO. NAME OF THE SUBSIDIARY PERIOD FOR THE REPORTING SUBSIDIARY OF INCORPORATION/ DATE ACQUISITION % OF SHAREHOLDING CURRENCY REPORTING RATE EXCHANGE SHARE CAPITAL & SURPLUS RESERVES LIABILITIES OTHER EQUITY AND LIABILITIES TOTAL ASSETS TOTAL INVESTMENTS* TURNOVER NET EXPENSE (T OF OTHER INCOME) OF OTHER BEFORE TAXATION PROFIT / (LOSS) FOR TAXATION PROVISION AFTER TAXATION PROFIT / (LOSS) PROPOSED DIVIDEND 13 Dr. Reddy's Laboratories Chile SPA. 31-03-19 16-06-17 100% CLP 0.10 65 (76) 189 178 178 - 79 119 (40) 1 (41) - 14 Dr. Reddy’s Laboratories (EU) Limited 31-03-19 17-04-02 100% GBP 90.53 723 1,407 1,637 3,767 3,767 - 2,486 1,575 911 174 737 - 15 Dr. Reddy’s Laboratories Inc.(1) 31-03-19 13-05-92 100% USD 69.16 580 9,476 29,974 40,030 40,030 21 60,067 69,728 (9,661) 867 (10,528) - 16 Dr. Reddy’s Laboratories International SA 31-03-19 24-03-10 100% CHF 69.43 275 3 1 279 279 ------17 Dr. Reddy’s Laboratories Japan KK 31-03-19 21-04-15 100% JPY 0.62 29 (26) 2 5 5 - - 16 (16) - (16) - 18 Dr Reddy’s Laboratories Kazakhstan LLP 31-03-19 30-11-16 100% KZT 0.18 81 109 735 925 925 - 1,712 1,716 (4) (6) 2 - 19 Dr. Reddy’s Laboratories LLC 31-03-19 11-05-11 100% UAH 2.54 71 22 1,242 1,335 1,335 - 2,484 2,411 73 3 70 - 20 Dr. Reddy’s Laboratories Louisiana LLC(1) 31-03-19 30-04-08 100% USD 69.16 - (452) 4,574 4,122 4,122 - 2,899 3,670 (771) - (771) - 21 Dr. Reddy’s Laboratories Malaysia Sdn. 31-03-19 10-07-17 100% MYR 16.94 49 (22) 14 41 41 - 54 62 (8) - (8) - Bhd. 22 Dr. Reddy’s Laboratories New York, Inc. 31-03-19 24-05-11 100% USD 69.16 - (1,556) 2,463 907 907 - - 429 (429) (3) (426) - Dr. Reddy's Laboratories Philippines Inc. 23 (from 9 May 2018) 31-03-19 09-05-18 100% PHP 1.32 12 (4) 2 10 10 - - 4 (4) - (4) - Dr. Reddy’s Laboratories (Proprietary) 24 Limited 31-03-19 13-06-02 100% ZAR 4.77 - 290 611 901 901 - 1,609 1,493 116 22 94 - 25 Dr. Reddy’s Laboratories Romania SRL 31-03-19 07-06-10 100% RON 16.33 24 237 44 305 305 - 608 570 38 13 25 - 26 Dr. Reddy’s Laboratories SA 31-03-19 16-04-07 100% USD 69.16 5,027 39,638 26,462 71,127 71,127 - 18,989 14,377 4,612 73 4,539 - 27 Dr. Reddy’s Laboratories SAS 31-03-19 04-11-14 100% COP 0.02 104 (6) 327 425 425 - 419 420 (1) - (1) - 28 Dr. Reddy's Laboratories Taiwan Ltd. 31-03-19 23-02-18 100% TWD 2.24 13 (11) 1 3 3 - - 10 (10) - (10) - Dr. Reddy’s Laboratories Tennessee, LLC(1) 29 (Till 1 October 2018) 31-03-19 07-10-10 100% USD 69.16 ------91 243 (152) - (152) - Dr. Reddy's Laboratories (Thailand) 30 Limited (from 13 June 2018) 31-03-19 13-06-18 100% TWD 2.24 23 (20) 3 6 6 - - 20 (20) - (20) - 31 Dr. Reddy’s Laboratories (UK) Limited 31-03-19 29-11-02 100% GBP 90.53 - 2,648 1,038 3,686 3,686 - 2,455 2,203 252 45 207 - 32 Dr. Reddy's Research and Development 31-03-19 15-02-13 100% EUR 77.67 460 (1,120) 3,520 2,860 2,860 - 979 1,058 (79) 31 (110) - B.V. (formerly Octoplus BV) 33 Dr. Reddy’s Singapore PTE. Ltd.(2) 31-03-19 22-10-13 100% SGD 51.04 ------(3) 3 - 3 - 34 Dr. Reddy’s Srl 31-03-19 05-08-08 100% EUR 77.67 6 (815) 1,178 369 369 - 283 280 3 - 3 - 35 Dr. Reddy’s New Zealand Limited 31-03-19 01-02-08 100% NZD 47.01 - 64 21 85 85 - 139 135 4 - 4 - 36 Dr. Reddy’s (WUXI) Pharmaceutical Co. 31-03-19 02-06-17 100% RMB 10.30 65 (38) 33 60 60 - 103 82 21 - 21 - Ltd 37 Dr. Reddy's Venezuela, C.A. 31-03-19 20-10-10 100% VES 0.02 58 (4,426) 4,518 150 150 - - 222 (222) - (222) - 38 Eurobridge Consulting B.V. 31-03-19 11-09-07 100% EUR 77.67 41 220 2,106 2,367 2,367 - - 214 (214) - (214) - 39 Idea2Enterprises (India) Private Limited 31-03-19 30-06-10 100% INR 1.00 25 1,511 4 1,540 1,540 ------40 Imperial Credit Private Limited 31-03-19 22-02-17 100% INR 1.00 12 11 - 23 23 23 - (1) 1 - 1 - 41 Industrias Quimicas Falcon de Mexico, 31-03-19 30-12-05 100% MXN 3.57 594 57 3,643 4,294 4,294 - 4,476 4,538 (62) 6 (68) - S.A. de CV 42 Kunshan Rotam Reddy Pharmaceutical 31-03-19 15-08-01 51.33% RMB 10.30 ------449 - Company Limited(3) 43 Lacock Holdings Limited 31-03-19 15-12-05 100% EUR 77.67 1 150 1 152 152 - - 1 (1) (23) 22 - 44 OOO Dr. Reddy's Laboratories Limited 31-03-19 05-04-03 100% RUB 1.07 738 1,596 9,847 12,181 12,181 - 18,291 17,797 494 142 352 - 45 OOO DRS LLC 31-03-19 11-09-07 100% RUB 1.07 30 74 109 213 213 - - 10 (10) - (10) - 46 Promius Pharma LLC(1) 31-03-19 14-02-03 100% USD 69.16 13,908 (13,414) 16,181 16,675 16,675 - 4,367 3,759 608 - 608 - 47 Reddy Antilles N.V. 31-03-19 30-01-97 100% USD 69.16 411 (346) 1 66 66 - - 30 (30) - (30) - 48 Reddy Holding GmbH(4) 31-03-19 15-02-06 100% EUR 77.67 2 20,750 5,579 26,331 26,331 - - (731) 731 235 496 - 49 Reddy Netherlands B.V. 31-03-19 20-02-97 100% EUR 77.67 7 2,821 15 2,843 2,843 - - 27 (27) 1 (28) - 50 Reddy Pharma Iberia SA 31-03-19 18-05-06 100% EUR 77.67 566 (522) 53 97 97 - 65 117 (52) - (52) -

Building a winning future 87 Dr. Reddy’s Laboratories Limited

Part “B”: Associates and joint ventures SHARES OF ASSOCIATE/JOINT PROFIT / LOSS FOR VENTURES HELD BY THE COMPANY ON THE YEAR THE YEAR END ATE SL. NO. NAME OF THE ASSOCIATE/ JOINT VENTURE BALANCE AUDITED LATEST SHEET D NO. AMOUNT OF IN INVESTMENT ASSOCIATES/JOINT VENTURE EXTEND OF HOLDING % TO ATTRIBUTABLE NET WORTH PER LATEST SHAREHOLDING AS BALANCE SHEET AUDITED CONSIDERED IN CONSOLIDATION CONSIDERED IN NOT CONSOLIDATION THERE IS DESCRIPTION OF HOW INFLUENCE A SIGNIFICANT WHY THE ASSOCIATE/ REASON JOINT VENTURE IS NOT CONSOLIDATED 1 DRANU LLC, USA NA NA 360 50% - - NA NA 2 DRES Energy Private Limited, India 31-Mar-19 8,580,000 86 26% - (11) (26) NA NA

for and on behalf of the Board of Directors of Dr. Reddy’s Laboratories Limited

K Satish Reddy Chairman G V Prasad Co-Chairman, Managing Director & CEO Place : Hyderabad Saumen Chakraborty Chief Financial Offi cer Date : 17 May 2019 Sandeep Poddar Company Secretary

88 Company Overview Statutory Reports Financial Statements Annual Report 2018-19

ANNEXURE-III

FORM NO. AOC – 2 (Pursuant to clause (h) of sub-Section (3) of Section 134 of the Companies Act, 2013 and Rule 8(2) of the Companies (Accounts) Rules, 2014) Form for disclosure of particulars of contracts/arrangements entered into by the company with related parties referred to in sub-Section (1) of Section 188 of the Companies Act, 2013 including certain arm’s length transactions under third proviso thereto

1. DETAILS OF CONTRACTS OR ARRANGEMENTS OR TRANSACTIONS NOT AT ARM’S LENGTH BASIS: (a) Name(s) of the related party and nature of relationship (b) Nature of contracts/arrangements/transactions (c) Duration of the contracts/arrangements/transactions (d) Salient terms of the contracts/arrangements/transactions including the value, if any Not Applicable (e) Justiﬁ cation for entering into such contracts/arrangements or transactions (f) Date(s) of approval by the board (g) Amount paid as advances, if any (h) Date on which the special resolution was passed in general meeting as required under ﬁ rst proviso to Section 188

2. DETAILS OF MATERIAL CONTRACTS OR ARRANGEMENT OR TRANSACTIONS AT ARM’S LENGTH BASIS (a) Names(s) of the related party and nature of relationship Dr. Reddy’s Laboratories Inc., USA – Wholly-owned subsidiary (b) Nature of contracts/arrangements/transactions Transfer or receipt of products, goods, materials or services (c) Duration of the contracts/arrangements/transactions Ongoing Salient terms of the contracts/arrangements/transactions Transfer or receipt of products, goods, materials or services on arm’s length (d) including the value, if any for an estimated amount of up to US$ 1,100 million every ﬁ nancial year (e) Date(s) of approval by the board, if any 13 May 2014 (f) Amount paid as advances, if any -

K Satish Reddy Chairman

ANNEXURE-IV

SECRETARIAL AUDIT REPORT Based on my verifi cation of the company’s (ii) The Securities Contracts (Regulation) FOR THE FINANCIAL YEAR ENDED books, papers, minute books, forms and Act, 1956 (‘SCRA’) and the Rules made 31 MARCH 2019 returns fi led and other records maintained thereunder; [Pursuant to Section 204(1) of the by the company and also the information (iii) The Depositories Act, 1996 and the Companies Act, 2013 and Rule 9 of provided by the company, its offi cers, Regulations and Bye-laws framed the Companies (Appointment and agents and authorized representatives thereunder; Remuneration of Managerial Personnel) during the conduct of Secretarial Audit, (iv) Foreign Exchange Management Act, Rules, 2014] I hereby report that in my opinion, the 1999 and the Rules and Regulations company has, during the audit period made thereunder to the extent of To, covering the fi nancial year ended on Foreign Direct Investment, Overseas The Members, 31 March 2019 (‘Audit Period’) complied Direct Investment (There were no Dr. Reddy’s Laboratories Limited, with the statutory provisions listed External Commercial Borrowings 8-2-337, Road No. 3, Banjara Hills, hereunder and also that the company transactions in the company, during the Hyderabad – 500 034, Telangana, India has proper board-processes and Audit Period); compliance-mechanism in place to the (v) The following Regulations and I have conducted the Secretarial Audit extent, in the manner and subject to the Guidelines prescribed under the of the compliance of applicable statutory reporting made hereinafter: Securities and Exchange Board of India provisions and the adherence to good Act, 1992 (‘SEBI Act’): corporate practices by Dr. Reddy’s I have examined the books, papers, minute (a) The Securities and Exchange Board Laboratories Limited (hereinafter called books, forms and returns fi led and other of India (Substantial Acquisition “the company”). Secretarial Audit was records maintained by the company for the of Shares and Takeovers) conducted in a manner that provided fi nancial year ended on 31 March 2019 Regulations, 2011; me a reasonable basis for evaluating the according to the provisions of: (b) The Securities and Exchange Board corporate conducts/statutory compliances (i) The Companies Act, 2013 (the Act) and of India (Prohibition of Insider and expressing my opinion thereon. the Rules made thereunder; Trading) Regulations, 2015;

Building a winning future 89 Dr. Reddy’s Laboratories Limited

(c) The Securities and Exchange of the Act, Rules, Regulations, Guidelines, ANNEXURE TO THE SECRETARIAL Board of India (Issue of Capital Standards, etc. mentioned above. AUDIT REPORT and Disclosure Requirements) Regulations, 2009 and 2018 (not I further report that the Board of Directors To, applicable to the company during of the company is duly constituted with The Members, the Audit Period); proper balance of Executive Directors and Dr. Reddy’s Laboratories Limited, (d) The Securities and Exchange Board Independent Directors. The changes in the 8-2-337, Road No. 3, Banjara Hills, of India (Share Based Employee composition of the Board of Directors that Hyderabad – 500 034, Telangana, India Benefi ts) Regulations, 2014; took place during the period under review (e) The Securities and Exchange Board were carried out in compliance with the My report of even date is to be read along of India (Issue and Listing of Debt provisions of the Act. with this letter: Securities) Regulations, 2008 (not applicable to the company during Adequate notice is given to all directors 1. Maintenance of secretarial records is the Audit Period); to schedule the Board Meetings, agenda the responsibility of the management (f) The Securities and Exchange Board and detailed notes on agenda were sent of the company. My responsibility is to of India (Registrars to an Issue and at least seven days in advance, and a express an opinion on these secretarial Share Transfer Agents) Regulations, system exists for seeking and obtaining records based on my audit. 1993 regarding the Companies Act further information and clarifi cations on the 2. I have followed the audit practices and dealing with client; agenda items before the meeting and for and processes as were appropriate (g) The Securities and Exchange Board meaningful participation at the meeting. to obtain reasonable assurance about of India (Delisting of Equity Shares) the correctness of the contents of the Regulations, 2009 (not applicable All decisions at Board Meetings and secretarial records. The verifi cation was to the company during the Audit Committee Meetings were carried out done on test-check basis to ensure that Period); and unanimously as recorded in the minutes of correct facts are refl ected in secretarial (h) The Securities and Exchange Board the meetings of the Board of Directors or records. I believe that the process of India (Buyback of Securities) Committees of the Board, as the case may and practices, I followed provide a Regulations, 1998 and 2018 (not be. reasonable basis for my opinion. applicable to the company during 3. I have not verifi ed the correctness and the Audit Period). I further report that there are adequate appropriateness of fi nancial records and systems and processes in the company books of accounts of the company. (vi) I further report that, having regard to commensurate with the size and operations 4. Wherever required, I have obtained the compliance system prevailing in of the company to monitor and ensure Management Representation about the company and on examination of compliance with applicable laws, rules, the compliance of laws, rules and the relevant documents and records in regulations and guidelines. regulations and happening of events, pursuance thereof on test-check basis, etc. the company has complied with the I further report that during the audit period 5. The compliance of the provisions following laws applicable specifi cally to there were no specifi c events/actions of corporate and other applicable the company: having a major bearing on the company’s laws, rules, regulations, standards is (a) The Drugs and Cosmetics Act, 1940 aff airs in pursuance of the above referred the responsibility of management. and Rules made thereunder; and laws, rules, regulations, guidelines, My examination was limited to the (b) Drugs (Prices Control) Order, 2013 standards. verifi cation of procedures on test-check and notifi cations made thereunder. basis. Dr. K R Chandratre 6. The Secretarial Audit report is neither I have also examined compliance with the FCS No.: 1370 an assurance as to future viability applicable clauses of the following: C. P. No.: 5144 of the company nor of the effi cacy (i) Secretarial Standards (SS-1 and SS-2) or eff ectiveness with which the issued by The Institute of Company Place : Pune management has conducted the aff airs Secretaries of India; and of the company. Date : 17 May 2019 (ii) The Securities and Exchange Board of India (Listing Obligations and Disclosure This report is to be read with my letter of Dr. K R Chandratre Requirements) Regulations, 2015. even date which is annexed as Annexure FCS No.: 1370 and forms an integral part of this report. C. P. No.: 5144 During the period under review the company has complied with the provisions Place : Pune Date : 17 May 2019

90 Company Overview Statutory Reports Financial Statements Annual Report 2018-19

ANNEXURE- V

ANNUAL REPORT ON CORPORATE SOCIAL RESPONSIBILITY (CSR) 1. A brief outline of the company's CSR policy, including overview of projects or programs proposed to be undertaken and a reference to the web-link to the CSR policy and projects or programs: The board has approved the CSR Policy of the company. It can be viewed at https://www.drreddys.com/media/527942/corporate-social-responsibility-policy_2017.pdf 2. The composition of the CSR committee: The CSR committee was constituted by the board of directors at its meeting held on 31 October 2013. As on date, the committee comprises of Mr. Bharat N Doshi (independent director) as chairman, Mr. G V Prasad and Mr. K Satish Reddy. 3. Average net profi t of the company for last three fi nancial years: ` 11,818,331,513/- 4. Prescribed CSR Expenditure (two percent of the amount as in item no. 3 above): ` 236,366,630/- 5. Details of CSR spent during the fi nancial year: (a) Total amount to be spent for the fi nancial year: ` 236,366,630/- (b) Amount unspent, if any: NA (c) Manner in which the amount spent during FY2019 is detailed below: (`) (A) (B) (C) (D) (E) (F) (G) (H) PROJECTS OR AMOUNT SPENT AMOUNT PROGRAMS (1) LOCAL ON THE PROJECTS OR OUTLAY CUMULATIVE AMOUNT SECTOR IN AREA OR OTHER PROGRAMS (BUDGET) EXPENDITURE SPENT: DIRECT SL. CSR PROJECT OR ACTIVITIES WHICH THE (2) SPECIFY THE PROJECT OR UPTO THE OR THROUGH NO. IDENTIFIED PROJECT IS STATE & DISTRICTS PROGRAM (1) DIRECT REPORTING IMPLEMENTING COVERED WHERE PROJECTS (2) OVER- WISE FOR THE EXPENDITURE PERIOD AGENCY OR PROGRAMS WAS HEADS* FY2019 ON PROJECTS* UNDERTAKEN 1 DRF education programs Education Telangana 30,000,000 30,000,000 30,000,000 Dr. Reddy's Foundation 2 Supporting and subsidizing quality Education Telangana 27,500,000 27,500,000 27,500,000 Pudami Educational education in low income schools Society 3 Quality education program in Education Telangana & Andhra 43,524,000 36,270,000 36,270,000 Dr. Reddy's Government schools -SIP Pradesh Foundation 4 Quality education in science Education Andhra Pradesh 3,687,364 3,000,040 3,000,040 Agastya International Foundation 5 Chair in chemical science Education Telangana 5,000,000 5,000,000 5,000,000 University of Hyderabad 6 Capacity building of social sector Education Telangana 840,000 840,000 840,000 Centre for Social professionals Initiative and Management - Hyderabad 7 Livelihood programs for youth Livelihood Across India 120,000,000 121,478,000 121,478,000 Dr. Reddy's & People with Disability (PwD) enhancement Foundation programs projects 8 MITRA - Agricultural program Livelihood Across India 6,570,846 4,222,244 4,222,244 Dr. Reddy's enhancement Foundation projects 9 Employment enhancing vocation skills Livelihood Telangana 500,000 91,494 91,494 Direct and livelihood enhancement projects enhancement projects 10 Farmer fi eld school project Livelihood Andhra Pradesh 11,341,000 10,618,233 10,618,233 Naandi Foundation enhancement projects 11 Psychological health support Healthcare Telangana 1,220,000 1,220,000 1,220,000 Roshni Trust 12 Community Health Intervention Healthcare Telangana & Andhra 15,000,000 15,000,000 15,000,000 NICE Foundation Program in maternal and child health Pradesh 13 Rural development and Rural development Telangana & Andhra 3,500,000 3,630,776 3,630,776 Direct infrastructure around units projects Pradesh 14 Program management cost Capacity Building 3,000,000 2,759,207 2,759,207 NA Grand Total 271,683,210 261,629,994 261,629,994 * For FY2019, the data on overheads is not separately accounted 6. In case the company has failed to spend the two per cent of the average net profi t of the last three fi nancial years or any part thereof, the company shall provide the reasons for not spending the amount in its board report: NA 7. A responsibility statement of the CSR committee that the implementation and monitoring of CSR Policy, is in compliance with CSR objectives and Policy of the company: The implementation and monitoring of CSR Policy is in compliance with the CSR objectives and Policy of the company.

G V Prasad Bharat N Doshi Co-Chairman, Managing Director & CEO Chairman, CSR committee

Building a winning future 91 Dr. Reddy’s Laboratories Limited

ANNEXURE - VI Information in terms of Section 197(12) of the Companies Act, 2013 read with Rule 5(1) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014

(i) The ratio of the remuneration of each director to the median remuneration of the employees of the company and the percentage increase in remuneration of each director, CEO, CFO and CS for FY2019:

RATIO OF % INCREASE / REMUNERATION OF (DECREASE) IN NAME DESIGNATION EACH DIRECTOR TO THE REMUNERATION MEDIAN REMUNERATION DURING/FOR FY2019 OF EMPLOYEES Mr. K Satish Reddy(1) Chairman 189 49 Mr. G V Prasad(1) Co-Chairman, managing director and CEO 274 60 Mr. Anupam Puri Independent director 25 29 Mr. Allan Oberman(2) Independent director 2NA Mr. Bharat N Doshi Independent director 24 29 Dr. Bruce L A Carter Independent director 23 33 Ms. Kalpana Morparia Independent director 21 33 Mr. Leo Puri(2) Independent director 11 NA Dr. Omkar Goswami Independent director 21 39 Mr. Prasad R Menon(3) Independent director 21 181 Ms. Shikha Sharma(2) Independent director 6NA Mr. Sridar Iyengar Independent director 23 30 Mr. Saumen Chakraborty(4)(5) Chief Financial Offi cer (CFO) NA (28) Mr. Sandeep Poddar(4) Company Secretary (CS) NA 11

(1) Includes commission, salary and perquisites. They do not receive any amount as remuneration from any subsidiary company. (2) Appointed as an independent director during FY2019, not comparable. (3) Remuneration in FY2018 was paid for part of the year, not comparable. (4) Includes ﬁ xed pay, actual variable pay, fuel & maintenance on actuals and does not include value of stock options. (5) Remuneration in FY2018, included long term incentive, payable once in four years.

(ii) The median remuneration of employees increased by 4.3% in FY2019. (iii) The number of permanent employees on the rolls of the company as on 31 March 2019 is 21,966. (iv) Average percentage increase in the salaries of employees other than the KMP for FY2019 was 10.7% as compared to FY2018. There was an increase of 25% in the total remuneration of KMP in FY2019 on account of computation of remuneration, on accrual basis to executive directors and on actual basis to CFO and CS. (v) It is hereby affi rmed that the remuneration for FY2019 is as per the remuneration policy of the company. K Satish Reddy Chairman

92 Company Overview Statutory Reports Financial Statements Annual Report 2018-19

ANNEXURE-VII of occupancy sensors to have energy and DG cooling towers to have better effi cient lighting system. Non-chemical power saving. Integrated Compressor CONSERVATION OF ENERGY, water treatment technology for cooling system to meet variable load demand. TECHNOLOGY ABSORPTION, FOREIGN tower water. Optimization of RH % when no production EXCHANGE EARNINGS AND OUTGO activity. Enhancing the effi ciencies of 2. Optimization of designs and operational refrigerant compressors by adopting artic (A) CONSERVATION OF ENERGY: effi ciencies: Optimization of Compressed master and ECO plug technologies. Boiler During the year, the company has air pressure and integration of piping of effi ciency improvement by tuning of the implemented energy conservation projects compressed air and integration of chillers. boilers and better condensate recovery. across its various business units and accrued Arresting the air leakages & reduction of Consolidation & optimized utilization savings of approximately ` 191 million against the unloading hours of air compressor of Chilled water/brine/air/nitrogen an investment of ` 140 million. units. Replaced Existing pumps with compressors based on load for CTO sites. energy effi cient Pumps, replaced existing Major categories of energy projects are: Chillers with energy effi cient chillers, and 3. Identifying renewable power sources electric heaters by steam coils for AHUs at low cost: 15 MW solar power plants 1. Installation of Innovative technology: and compressors to enhance energy under Joint venture structure have been Horizontal deployment of Phase-II, effi ciency. Optimization of HVAC usage commissioned and synchronized with replacement of conventional blower by shut down/sleep mode operations grid for supply of power. Long-term motor technology with electronically based on working requirements of open access approval from DISCOM commutated (EC) motor technology in plants. Installed VFD for AHU to minimize & TRANSCO got for 7 MW plant and is HVAC systems across FTO sites. Phase-III power losses, Installed Capacitor banks expected to get the same by May’19 Horizontal deployment of automatic tube to maintain power factor close to unity, for 8 MW plant. Power supply will be cleaning system in refrigeration chillers Optimization of Chilled water temperature catered to CTO-1, CTO-2, CTO-3,CTO-5, and Heat pumps, Phase-III zero purge based on environmental temperature FTO-2, FTO-3 and Biologics plants at loss air dryers/HOC drier for compressed changes. Steam usage reduction by cheaper rates. 600 KW rooftop solar plant air. Replacement of Existing IE1 standard installing Heat pumps, eff ectively reduced installation is in progress at FTO-6&8 motors with Energy effi cient IE3 standard FO consumption by improving hot plants. motors, use of LED lights, installation condensate recovery, Integrated Chillers

(B) TECHNOLOGY ABSORPTION i. Eff orts made towards technology absorption The company has a full-fl edged R&D division continuously engaged in research on new products and process improvement on existing products as part of continuous improvement. As a part of technology absorption and adoption, once technology is developed for a product, it is tested in a pilot plant and thereafter commercial production is performed. Innovation is embarked by an incremental approach towards cost, time, quality and complex product development by adopting cutting edge technology and our philosophy is to continuously upgrade the technology. ii. Benefi ts derived like product improvement, Successful development of complex generics products accomplished through Innovation and cost reduction, product development or science. Improved quality by adopting quality by design concept. Technology adoption yielded import substitution. improvement in robustness and cost. iii. In case of imported technology (imported No imported technology during the last three years reckoned from the beginning of the fi nancial year) – a) Details of technology imported b) Year of import c) Whether the technology been fully absorbed d) If not fully absorbed, areas where absorption has not taken place, and the reasons therefore iv Expenditure incurred on R&D FY2019 FY2018 Capital (` million) 699 455 Recurring* (` million) 11,295 13,985 Total (` million) 11,994 14,440 Total R&D expenditure as a percentage of total turnover 11.29% 15.43% * Excluding depreciation and amortization C) FOREIGN EXCHANGE EARNINGS AND OUTGO Foreign exchange earned in terms of actual infl ows and foreign exchange outgo in terms of actual outfl ows during the year: Particulars (` MILLIONS) Foreign exchange earned in terms of actual Infl ows 88,673 Foreign exchange outgo in terms of actual outfl ows 19,104

K Satish Reddy Chairman

Building a winning future 93 Dr. Reddy’s Laboratories Limited

ANNEXURE-VIII

FORM NO. MGT-9 EXTRACT OF ANNUAL RETURN as on the ﬁ nancial year ended on 31 March 2019 (Pursuant to Section 92(3) of the Companies Act, 2013 and Rule 12(1) of the Companies (Management and Administration) Rules, 2014)

I REGISTRATION AND OTHER DETAILS: SL. PARTICULARS DETAILS NO. i) CIN L85195TG1984PLC004507 ii) Registration date 24 February 1984 iii) Name of the company Dr. Reddy's Laboratories Limited iv) Category/sub-category of the company Public company/limited by shares v) Address of the registered offi ce and contact details 8-2-337, Road No. 3, Banjara Hills, Hyderabad – 500 034 Tel: +91-40-4900 2900 Fax: +91-40-4900 2999 E-mail ID: [email protected] vi) Whether listed company Yes/No Yes vii) Name, address and contact details of registrar and transfer agent, if any Bigshare Services Private Limited 306, Right wing, 3rd ﬂ oor, Amrutha Ville, Opp. Yashoda Hospital, Rajbhavan Road, Hyderabad–500 082 Tel: +91-40-2337 4967 Fax: +91-40-2337 0295 E-mail ID: [email protected]

II. PRINCIPAL BUSINESS ACTIVITES OF THE COMPANY All the business activities contributing 10% or more of the total turnover of the company are given below:

SL. NAME AND DESCRIPTION OF MAIN NIC CODE OF THE % TO TOTAL TURNOVER OF NO. PRODUCTS/SERVICES PRODUCT/SERVICE THE COMPANY 1 Pharmaceuticals 210 100%

III. PARTICULARS OF HOLDING, SUBSIDIARY AND ASSOCIATE COMPANIES HOLDING/ % OF SL. APPLICABLE NAME OF THE COMPANY ADDRESS OF THE COMPANY CIN/GLN SUBSIDIARY/ SHARES NO. SECTION ASSOCIATE HELD* 1 Dr. Reddy's New Zealand 82, Totara Crescent, Woburn, Lower NA Subsidiary 100 2(87)(ii) Limited Hutt, 5011, New Zealand 2 Dr. Reddy’s Laboratories Level 9, 492, St. Kilda Road, NA Subsidiary 100 2(87)(ii) (Australia) Pty. Limited Melbourne, Victoria, Australia 3 Dr. Reddy’s Laboratories The Place, 1 Sandton Drive, Sandton NA Subsidiary 100 2(87)(ii) (Proprietary) Limited 2196, South Africa 4 Dr. Reddy's Venezuela, C.A. Av. Orinoco, Torre L&M Building, NA Subsidiary 100 2(87)(ii) Offi ce 4, Las Mercedes Caracas, Venezuela 5 Dr. Reddy’s Laboratories, 107 College Road East, Princeton, NA Subsidiary 100 2(87)(ii) Inc. New Jersey, 08540, USA 6 Promius Pharma, LLC 107 College Road East, Princeton, NA Subsidiary 100 2(87)(ii) New Jersey, 08540, USA 7 Dr. Reddy’s Laboratories 8800 Line Avenue, Shreveport, LA NA Subsidiary 100 2(87)(ii) Louisiana, LLC 71106-6717, USA 8 Reddy Pharma Italia S.R.L. Milan, via Piazza Santa Maria NA Subsidiary 100 2(87)(ii) Beltrade 1, Italy 9 Dr. Reddy’s S.R.L. Milan, via Piazza Santa Maria NA Subsidiary 100 2(87)(ii) Beltrade 1, Italy 10 Reddy Pharma Iberia S.A.U. Avenida Josep Tarradellas, n°38 – NA Subsidiary 100 2(87)(ii) 08029, Barcelona, Spain 11 Dr. Reddy’s Farmaceutica AV. Guido Caloi, 1895 - JD. Sao Luis - NA Subsidiary 100 2(87)(ii) Do Brasil Ltda. Sao Paulo, Brazil 12 Dr. Reddy’s Laboratories Unit 6, Riverview Road, Beverly, East NA Subsidiary 100 2(87)(ii) (UK) Limited Yorkshire, HU17 Old, UK

94 Company Overview Statutory Reports Financial Statements Annual Report 2018-19

HOLDING/ % OF SL. APPLICABLE NAME OF THE COMPANY ADDRESS OF THE COMPANY CIN/GLN SUBSIDIARY/ SHARES NO. SECTION ASSOCIATE HELD* 13 Dr. Reddy’s Laboratories Unit 6, Riverview Road, Beverly, East NA Subsidiary 100 2(87)(ii) (EU) Limited Yorkshire, HU17 Old, UK 14 Chirotech Technology Chirotech Technology Centre, 410 NA Subsidiary 100 2(87)(ii) Limited Cambridge Science Park, Milton Road, Cambridge UK 15 Kunshan Rotam Reddy 258, Huang Pu Jiang Zhong Lu, NA Subsidiary 51.33 2(87)(ii) Pharmaceutical Co. Limited Kunshan, Jiangsu, P.R. China- 215300 16 OOO Dr. Reddy’s 20, Ovchinnikovskaya Emb, Moscow, NA Subsidiary 100 2(87)(ii) Laboratories Limited Russia 17 Dr. Reddy’s Laboratories 71, Nicolac Caramfi l, Floor 5, Space NA Subsidiary 100 2(87)(ii) Romania S.R.L. 10, 014142 Bucharest 1, Romania 18 Reddy Holding GmbH Kobelweg-95, 86156 Augsburg, NA Subsidiary 100 2(87)(ii) Germany 19 beta Institut gemeinnützige Kobelweg-95, 86156 Augsburg, NA Subsidiary 100 2(87)(ii) GmbH Germany 20 betapharm Arzneimittel Kobelweg-95, 86156 Augsburg, NA Subsidiary 100 2(87)(ii) GmbH Germany 21 Lacock Holdings Limited 10, Diomidious Street, Alphamega NA Subsidiary 100 2(87)(ii) Akropolis Bldg, 3rd fl oor, Offi ce 401, 2024 Nicosia, Cyprus 22 Reddy Netherlands B.V. Zernikedreef 12, 23333 CL Leiden, NA Subsidiary 100 2(87)(ii) The Netherlands 23 Reddy Antilles N.V. Landhuis Joonchi Kaya Richard NA Subsidiary 100 2(87)(ii) Beajon z/n., Curacao 24 Dr. Reddy’s Laboratories SA Elisabethenanlage 11, CH-4051, NA Subsidiary 100 2(87)(ii) Basel, Switzerland 25 Dr. Reddy’s Laboratories Elisabethenanlage 11, CH-4051, NA Subsidiary 100 2(87)(ii) International SA Basel, Switzerland 26 Industrias Quimicas Falcon Carr.Federal Cuernavaca -Cuautla NA Subsidiary 100 2(87)(ii) de Mexico, S.A. Km.4.5, Civac, Jiutepec, Mor, Mexico 62578 27 Aurigene Discovery Wisma, Adiss Udarmana Complex, NA Subsidiary 100 2(87)(ii) Technologies (Malaysia) 1-3A Jalan, 1/64A, Kuala Lumpur Sdn. Bhd. 50530, Malaysia 28 Dr. Reddy's Laboratories 1974, State Route, 145 Middleburgh, NA Subsidiary 100 2(87)(ii) New York, Inc. NY 12122, USA 29 Dr. Reddy's Laboratories 121 А, Kyivskiy Shlaykh str., v. Velika, NA Subsidiary 100 2(87)(ii) LLC Oleksandrivka, Borispil region, Kyiv oblast, Ukraine 30 Dr. Reddy's Research and Zernikedreef 12, 23333 CL Leiden, NA Subsidiary 100 2(87)(ii) Development B.V. The Netherlands 31 Dr. Reddy's Laboratories 5580 Explorer Drive, Suite 204, NA Subsidiary 100 2(87)(ii) Canada Inc. Mississauga, ON L4W 4Y1, Canada 32 Dr. Reddy's Singapore Pte. 16, Raffl es Quay # 33-03 Hong NA Subsidiary 100 2(87)(ii) Limited Leong Bldg, Singapore- 048581 33 Dr. Reddy's Laboratories Av Cra 7 No 155C - 30 Ofi cina 2805 NA Subsidiary 100 2(87)(ii) S.A.S. North Point Torres E, Bagota D.C., Colombia 34 Aurigene Discovery 107, College Road East, Princeton, NA Subsidiary 100 2(87)(ii) Technologies, Inc. New Jersey – 08540, USA 35 Dr. Reddy's Laboratories Zernikedreef 12, 23333 CL Leiden, NA Subsidiary 100 2(87)(ii) B.V. (Formerly known as The Netherlands Eurobridge Consulting B.V.) 36 OOO DRS LLC 20, Ovchinnikovskaya Emb, Moscow, NA Subsidiary 100 2(87)(ii) Russia 37 Dr. Reddy’s Laboratories Kabutoch, 1st Heiwa Building, 3F, 5-1 NA Subsidiary 100 2(87)(ii) Japan KK Nihonbashi Kabutocho, Chuo-Ku, Tokyo 103-0026, Japan 38 Reddy Pharma SAS Avenue Edouard Belin 9, 92500 NA Subsidiary 100 2(87)(ii) Rueil-Malmaison, France

Building a winning future 95 Dr. Reddy’s Laboratories Limited

HOLDING/ % OF SL. APPLICABLE NAME OF THE COMPANY ADDRESS OF THE COMPANY CIN/GLN SUBSIDIARY/ SHARES NO. SECTION ASSOCIATE HELD* 39 Dr. Reddy’s Laboratories Business Centre Alatau Grand, NA Subsidiary 100 2(87)(ii) Kazakhstan LLP Offi ce No. 905, Street Timiryazeva 28B, Almaty, 050040, Kazakhstan 40 Dr. Reddy’s (WUXI) E2-518, No. 200 Linghu Revenue, NA Subsidiary 100 2(87)(ii) Pharmaceutical Co. Limited Xinwu District, Wuxi, Jiangsu, China 41 Dr. Reddy's Laboratories Roger de Flor, N 2736, 6th Floor, Las NA Subsidiary 100 2(87)(ii) Chile SPA Condes County, Chile 42 Dr. Reddy's Laboratories 10th Floor, Menara Hap Seng No. 1 NA Subsidiary 100 2(87)(ii) Malaysia Sdn. Bhd. and 3, Jalan P Ramlee, 50250, Kuala Lumpur, W P, Malaysia 43 Dr. Reddy’s Laboratories (110) 57F-1, No. 7, Sec. 5, Xinyi Road, NA Subsidiary 100 2(87)(ii) Taiwan Limited Xinyi Dist., Taipei, Taiwan 44 Dr. Reddy's Laboratories 25/F, Philam Life Tower, 8767, Paseo NA Subsidiary 100 2(87)(ii) Philippines Inc. De Roxas, Bel-Air, City of Makati, (incorporated on May 9, NCR, Fourth District, Philippines 2018) 45 Dr. Reddy's Laboratories No. 1 Empire Tower Building, 16th NA Subsidiary 100 2(87)(ii) (Thailand) Limited ﬂ oor, Unit 1607, South Sathorn Road, (incorporated on June 13 Yannawa, Sathorn, Bangkok 10120 2018) 46 Aurigene Discovery 39-49(P), KIADB Industrial Area, U24239KA2001PLC029391 Subsidiary 100 2(87)(ii) Technologies Limited Electronic City Phase II, Bengaluru – 560 100, Karnataka, India 47 DRL Impex Limited 8-2-337, Road No.3, Banjara Hills, U65990TG1986PLC006695 Subsidiary 100 2(87)(ii) Hyderabad – 500 034, Telangana, India 48 Dr. Reddy's Bio-Sciences 8-2-337, Road No.3, Banjara Hills, U72200TG2000PLC034765 Subsidiary 100 2(87)(ii) Limited Hyderabad – 500 034, Telangana, India 49 Idea2Enterprises (India) Private 8-2-337, Road No.3, Banjara Hills, U72200TG2000PTC034473 Subsidiary 100 2(87)(ii) Limited Hyderabad – 500 034, Telangana, India 50 Cheminor Investments Limited 8-2-337, Road No.3, Banjara Hills, U67120TG1990PLC010931 Subsidiary 100 2(87)(ii) Hyderabad – 500 034, Telangana, India 51 Regkinetics Services Limited 8-2-337, Road No.3, Banjara Hills, U24233TG2009PLC064271 Subsidiary 100 2(87)(ii) (Formerly known as Dr. Reddy’s Hyderabad – 500 034, Telangana, India Pharma SEZ Limited) 52 Imperial Credit Private Limited 8-2-337, Road No.3, Banjara Hills, U06519TG1991PTC126383 Subsidiary 100 2(87)(ii) Hyderabad – 500 034, Telangana, India 53 DRES Energy Private Limited No.55, Solar Tower, 6th Main, 11th Cross, U40104KA2015PTC083148 Joint Venture 26 2(6) Lakshmaiah Block, Ganganagar, Bengaluru – 560 024, Karnataka, India 54 DRANU, LLC C/o. Emerging Enterprise Centre, 1000 NA Joint Venture 50 2(6) Winter Street, Suite 4000, Waltham, MA 02451, USA * Represents aggregate % of shares held by the company and/or its subsidiaries.

96 Company Overview Statutory Reports Financial Statements Annual Report 2018-19

IV. SHAREHOLDING PATTERN (equity share capital breakup as a percentage of total equity) I) CATEGORY-WISE SHAREHOLDING NO. OF SHARES HELD AT THE NO. OF SHARES HELD AT THE % CHANGE CATEGORY OF BEGINNING OF THE YEAR END OF THE YEAR % OF TOTAL % OF TOTAL DURING THE SHAREHOLDERS DEMAT PHYSICAL TOTAL DEMAT PHYSICAL TOTAL SHARES SHARES YEAR A. PROMOTERS (1) Indian a) Individual/HUF 3,315,328 - 3,315,328 2.00 3,133,228 - 3,133,228 1.89 (0.11) b) Central Govt. ------c) State Govt(s). ------d) Bodies Corp. 41,083,500 - 41,083,500 24.76 41,325,300 - 41,325,300 24.88 0.12 e) Banks/FI ------f) Any other ------Sub-total (A)(1) 44,398,828 - 44,398,828 26.76 44,458,528 - 44,458,528 26.77 0.01 (2) Foreign a) NRIs-individuals ------b) Other-individuals ------c) Bodies corp. ------d) Banks/FI ------e) Any other ------Sub-total (A)(2) ------Total shareholding of promoters (A)=(A) 44,398,828 - 44,398,828 26.76 44,458,528 - 44,458,528 26.77 0.01 (1)+(A)(2) B. PUBLIC SHAREHOLDING (1) Institutions a) Mutual funds/UTI 14,765,047 2,890 14,767,937 8.90 15,129,141 2,890 15,132,031 9.11 0.21 b) Banks/FI 380,679 3,586 384,265 0.23 337,528 3,586 341,114 0.21 (0.02) c) Central Govt. ------d) State Govt(s). ------e) Venture capital funds ------f) Insurance companies 9,294,096 400 9,294,496 5.60 8,173,652 400 8,174,052 4.92 (0.68) g) FIIs/FPIs 50,178,829 11,000 50,189,829 30.25 51,360,769 11,000 51,371,769 30.94 0.69 h) Foreign venture capital funds ------i) Others-Alternate investment funds 113,600 - 113,600 0.07 470,455 - 470,455 0.28 0.21 Sub-total (B)(1) 74,732,251 17,876 74,750,127 45.05 75,471,545 17,876 75,489,421 45.46 0.41 (2) Non-Institutions a) Bodies corp. i) Indian 6,162,951 9,176 6,172,127 3.72 5,716,047 9,176 5,725,223 3.45 (0.27) ii) Overseas ------b) Individuals i) Individual shareholders holding nominal share capital 12,751,432 900,324 13,651,756 8.23 11,555,069 661,749 12,216,818 7.36 (0.87) upto ` 1 lakh ii) Individual shareholders holding nominal share capital 796,104 26,890 822,994 0.49 789,245 26,890 816,135 0.49 - in excess of ` 1 lakh c) Others i) Trust 1,502,271 - 1,502,271 0.91 1,166,310 - 1,166,310 0.70 (0.21) ii) Clearing member 172,014 - 172,014 0.10 270,440 - 270,440 0.16 0.06 iii) NRIs 1,568,212 251,742 1,819,954 1.10 1,568,760 182,748 1,751,508 1.06 (0.04) iv) Foreign nationals 11,040 - 11,040 0.01 11,821 - 11,821 0.01 - v) Unclaimed suspense escrow account 417,932 - 417,932 0.25 381,269 - 381,269 0.23 (0.02) vi) IEPF 115,262 - 115,262 0.07 122,770 - 122,770 0.07 - vii) ESOS Trust* - - - - 217,976 - 217,976 0.13 0.13 Sub-total (B)(2) 23,497,218 1,188,132 24,685,350 14.88 21,799,707 880,563 22,680,270 13.66 (1.22) Total Public Shareholding (B)=(B)(1)+ (B)(2) 98,229,469 1,206,008 99,435,477 59.93 97,271,252 898,439 98,169,691 59.12 (0.81) C. SHARES HELD BY CUSTODIAN 22,076,602 - 22,076,602 13.31 23,437,729 - 23,437,729 14.11 0.80 FOR ADRs Grand total (A+B+C) 164,704,899 1,206,008 165,910,907 100.00 165,167,509 898,439 166,065,948 100.00 - * Dr. Reddy's Employees ESOS Trust was formed for Implementation of Dr. Reddy's Employees Stock Option Scheme, 2018 (2018 ESOS). Shares held by this Trust are classiﬁ ed as non-promoter non-public shareholding as per the provisions of SEBI (Share Based Employee Beneﬁ t) Regulations, 2014.

Building a winning future 97 Dr. Reddy’s Laboratories Limited

II) SHAREHOLDING OF PROMOTERS NO. OF SHARES HELD AT NO. OF SHARES HELD AT THE BEGINNING OF THE YEAR THE END OF THE YEAR % CHANGE SL. SHAREHOLDERS' NAME % OF TOTAL % OF SHARES % OF TOTAL % OF SHARES DURING THE NO. NO. OF SHARES PLEDGED/ NO. OF SHARES PLEDGED/ YEAR SHARES OF THE ENCUMBERED TO SHARES OF THE ENCUMBERED TO COMPANY TOTAL SHARES* COMPANY TOTAL SHARES* 1 Dr. Reddy's Holdings Limited 41,083,500 24.76 - 41,325,300 24.88 - 0.12 2 Mr. K Satish Reddy 1,019,332 0.62 - 898,432 0.54 - (0.08) 3 Mrs. K Samrajyam 1,115,360 0.67 - 1,115,360 0.67 - - 4 Mr. G V Prasad 1,179,140 0.71 0.19 1,117,940 0.68 - (0.03) 5 Mrs. G Anuradha 1,496 0.00 - 1,496 0.00 - - 6 Mrs. K Deepti Reddy 00 - 00 - - 7 APS Trust 00 - 00 - - 8 VSD Holdings & Advisory LLP 00 - 00 - - 9 K Satish Reddy (HUF) 00 - 00 - - 10 Ms. G Vani Sanjana Reddy 00 - 00 - - 11 Ms. G Mallika Reddy 00 - 00 - - 12 G V Prasad (HUF) 00 - 00 - - 13 Mr. G Sharathchandra Reddy 00 - 00 - - 14 Ms. K Shravya Reddy 00 - 00 - - 15 Mr. K Vishal Reddy 00 - 00 - - 44,398,828 26.76 0.19 44,458,528 26.77 - 0.01 * The term ‘encumbrance’ has the same meaning as assigned to it in Regulation 28(3) of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011. Shareholders listed under sl. no. 1 to 15 are disclosed as promoters’ under Regulation 30(2) of SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 as on 31 March 2019. During the year, the pledge on 50,000 and 268,100 equity shares held by Mr. G V Prasad was released on 7 August 2018 and 16 August 2018 respectively.

III) CHANGE IN PROMOTERS’ SHAREHOLDING SHAREHOLDING AT CUMULATIVE SHAREHOLDING THE BEGINNING OF THE YEAR DURING THE YEAR PARTICULARS % OF TOTAL % OF TOTAL NO. OF SHARES SHARES OF THE NO. OF SHARES SHARES OF THE COMPANY COMPANY At the beginning of the year 44,398,828 26.76 Date wise increase/decrease in promoters’ shareholding 59,700 0.01 44,458,528 26.77 during the year specifying the reasons for increase/decrease (e.g. allotment/transfer/bonus/sweat equity etc) #: At the end of the year 44,458,528 26.77 # Details of inter se transfer within promoters and increase in the promoters’ shareholding during the year:

CUMULATIVE SHAREHOLDING SHAREHOLDING DURING THE YEAR INCREASE/ SL. NO. OF (DECREASE) NAME DATE REASON NO. SHARES % OF TOTAL IN SHARE- % OF TOTAL AT THE SHARES HOLDING NO. OF SHARES BEGINNING OF THE SHARES OF THE OF THE COMPANY COMPANY YEAR 1 Dr. Reddy’s Holdings 41,083,500 24.76 01-04-2018 Limited 13-08-2018 160,000 Inter se purchase 41,243,500 24.85 10-09-2018 3,800 Inter se purchase 41,247,300 24.84 26-09-2018 78,000 Inter se purchase 41,325,300 24.88 31-03-2019 41,325,300 24.88 2 Mr. K Satish Reddy 1,019,332 0.61 01-04-2018 Chairman 13-08-2018 (80,000) Inter se sale 939,332 0.56 10-09-2018 (1,900) Inter se sale 937,432 0.56 26-09-2018 (39,000) Inter se sale 898,432 0.54 31-03-2019 - - 898,432 0.54

98 Company Overview Statutory Reports Financial Statements Annual Report 2018-19

CUMULATIVE SHAREHOLDING SHAREHOLDING DURING THE YEAR INCREASE/ SL. NO. OF (DECREASE) NAME DATE REASON NO. SHARES % OF TOTAL IN SHARE- % OF TOTAL AT THE SHARES HOLDING NO. OF SHARES BEGINNING OF THE SHARES OF THE OF THE COMPANY COMPANY YEAR 3 Mr. G V Prasad 1,179,140 0.71 01-04-2018 Co-chairman, managing 25-05-2018 56,063 Market Purchase 1,235,203 0.74 director & CEO 28-05-2018 1,137 Market Purchase 1,236,340 0.74 31-05-2018 2,500 Market Purchase 1,238,840 0.74 13-08-2018 (80,000) Inter se sale 1,158,840 0.70 10-09-2018 (1,900) Inter se sale 1,156,940 0.70 26-09-2018 (39,000) Inter se sale 1,117,940 0.68 31-03-2019 - - 1,117,940 0.68

IV) SHAREHOLDING PATTERN OF TOP TEN SHAREHOLDERS (OTHER THAN DIRECTORS, PROMOTERS AND HOLDERS OF GDRS AND ADRS) SHAREHOLDING AT SHAREHOLDING AT THE BEGINNING OF THE YEAR THE END OF THE YEAR SL. NAME % OF TOTAL % OF TOTAL NO. NO. OF NO. OF SHARES OF THE SHARES OF THE SHARES SHARES COMPANY COMPANY 1 First State Investments ICVC – Stewart Investors Asia Paciﬁ c 5,377,008 3.24 4,806,479 2.89 Leaders Fund 2 Oppenheimer Developing Markets Fund# 5,286,227 3.19 - - 3 Franklin Templeton Investment Funds# 4,831,949 2.91 273,077 0.16 4 Life Insurance Corporation of India 4,132,738 2.49 4,132,738 2.49 5 Teluk Kemang Investments (Mauritius) Limited# 2,015,592 1.21 - - 6 First State Investments ICVC – Stewart Investors Global 1,947,863 1.17 2,344,636 1.41 Emerging Markets Leaders Fund 7 Life Insurance Corporation of India P & GS Fund 1,682,747 1.01 1,682,747 1.01 8 ICICI Prudential Life Insurance Company Limited 1,441,803 0.87 1,440,884 0.87 9 Government of Singapore# 1,439,443 0.87 1,167,443 0.70 10 ISHARES India Index Mauritius Company# 1,327,083 0.80 1,189,988 0.72 11 Stewart Investors Global Emerging Markets Leaders Fund* 633,860 0.38 1,428,617 0.86 12 Aditya Birla Sun Life Trustee Private Limited A/c Aditya Birla 583,200 0.35 1,619,000 0.97 Sun Life Equity Fund* 13 Government Pension Fund Global* 979,722 0.59 1,371,918 0.83 14 Stichting Depositary APG Emerging Markets Equity Pool* 343,168 0.21 1,339,600 0.81 15 SBI-ETF NIFTY 50* 951,009 0.57 1,331,350 0.80 # Ceased to be in the list of top 10 shareholders as on 31 March 2019 but was one of the top 10 shareholders as on 1 April 2018. * Not in the list of top 10 shareholders as on 1 April 2018 but was one of the top 10 shareholders as on 31 March 2019. V) SHAREHOLDING OF DIRECTORS AND KEY MANAGERIAL PERSONNEL CUMULATIVE SHAREHOLDING AT THE SHAREHOLDING BEGINNING OF THE YEAR INCREASE/ (DECREASE) DURING THE YEAR SL. NAME DATE IN SHARE- REASON NO. % OF TOTAL % OF TOTAL NO. OF SHARES HOLDING, IF NO. OF SHARES SHARES OF THE ANY SHARES OF THE COMPANY COMPANY A. DIRECTORS 1. Mr. K Satish Reddy 01-04-2018 1,019,332 0.61 Chairman 13-08-2018 (80,000) Inter se sale 939,332 0.56 10-09-2018 (1,900) Inter se sale 937,432 0.56 26-09-2018 (39,000) Inter se sale 898,432 0.54 31-03-2019 898,432 0.54 898,432 0.54

Building a winning future 99 Dr. Reddy’s Laboratories Limited

CUMULATIVE SHAREHOLDING AT THE SHAREHOLDING BEGINNING OF THE YEAR INCREASE/ (DECREASE) DURING THE YEAR SL. NAME DATE IN SHARE- REASON NO. % OF TOTAL % OF TOTAL NO. OF SHARES HOLDING, IF NO. OF SHARES SHARES OF THE ANY SHARES OF THE COMPANY COMPANY 2 Mr. G V Prasad 01-04-2018 1,179,140 0.71 Co-chairman, managing director 25-05-2018 56,063 Market purchase 1,235,203 0.74 & CEO 28-05-2018 1,137 Market purchase 1,236,340 0.74 31-05-2018 2,500 Market purchase 1,238,840 0.74 13-08-2018 (80,000) Inter se sale 1,158,840 0.70 10-09-2018 (1,900) Inter se sale 1,156,940 0.70 26-09-2018 (39,000) Inter se sale 1,117,940 0.68 31-03-2019 1,117,940 0.67 1,117,940 0.67 3 Dr. Omkar Goswami 01-04-2018 22,800 0.01 Independent director 31-03-2019 22,800 0.01 22,800 0.01 4 Ms. Kalpana Morparia 01-04-2018 10,800 0.01 Independent director 31-03-2019 10,800 0.01 10,800 0.01 5 Prasad R Menon 01-04-2018 0 0.00 Independent director 31-03-2019 0 0.00 0 0.00 6 Mr. Sridar Iyengar 01-04-2018 0 0.00 Independent director 31-03-2019 0 0.00 0 0.00 7 Dr. Bruce L A Carter* 01-04-2018 7,800 0.00 Independent director 31-03-2019 7,800 0.00 7,800 0.00 8 Mr. Anupam Puri* 01-04-2018 13,500 0.01 Independent director 31-03-2019 13,500 0.01 13,500 0.01 9 Mr. Bharat N Doshi 01-04-2018 1,000 0.00 Independent director 31-03-2019 1,000 0.00 1,000 0.00 10 Mr. Hans Peter Hasler** 01-04-2018 0 0.00 Independent director 14-06-2018 0 0.00 0 0.00 11 Mr. Leo Puri# 25-10-2018 0 0.00 Independent director 31-03-2019 0 0.00 0 0.00 12 Ms. Shikha Sharma# 31-01-2019 0 0.00 Independent director 31-03-2019 0 0.00 0 0.00 13 Mr. Allan Oberman# 26-03-2019 0 0.00 Independent director 31-03-2019 0 0.00 0 0.00 B. KEY MANAGERIAL PERSONNEL (KMP) 14 Mr. Saumen 01-04-2018 38,750 0.02 Chakraborty President & CFO 12-06-2018 2,250 ESOP 41,000 0.02 06-07-2018 875 ESOP 41,875 0.03 22-08-2018 1,000 ESOP 42,875 0.03 31-03-2019 42,875 0.03 15 Mr. Sandeep Poddar 01-04-2018 2,100 0.00 Company Secretary 12-06-2018 349 ESOP 2,449 0.00 22-08-2018 105 ESOP 2,554 0.00 30-11-2018 (54) Sell 2,500 0.00 31-03-2019 2,500 0.00 * Holding ADRs ** Term ended on 14 June 2018 as an independent director # The opening shareholding has been considered from the date on which he/she was appointed as an independent director.

100 Company Overview Statutory Reports Financial Statements Annual Report 2018-19

V. INDEBTEDNESS Indebtedness of the company including interest outstanding/accrued but not due for payment (` MILLION) SECURED LOANS UNSECURED TOTAL DEPOSITS EXCLUDING LOANS INDEBTEDNESS DEPOSITS Indebtedness at the beginning of the fi nancial year (1 April 2018) i) Principal Amount - 25,888 - 25,888 ii) Interest due but not paid --- - iii) Interest accrued but not due -8 - 8 Total (i+ii+iii) - 25,896 - 25,896 Change in Indebtedness during the fi nancial year --- - Addition, net --- - Reduction, net - 15,242 - 15,242 Reduction in interest accrued but not due on loan, net -6 - 6 Net change - (15,248) - (15,248) Indebtedness at the end of the fi nancial year (31 March 2019) i) Principal amount - 10,646 - 10,646 ii) Interest due but not paid --- - iii) Interest accrued but not due -2 - 2 Total (i+ii+iii) - 10,648 - 10,648

VI. REMUNERATION OF DIRECTORS AND KEY MANAGERIAL PERSONNEL A) Remuneration to managing director, whole-time director and/or manager

(` MILLION) SL. NAME OF MD/WTD/MANAGER PARTICULARS OF REMUNERATION TOTAL AMOUNT NO. K SATISH REDDY G V PRASAD 1 Gross Salary (a) Salary as per provisions contained in Section 17(1) of the 18.35 18.35 36.70 Income-tax Act, 1961 (b) Value of perquisites u/s. 17(2) Income-tax Act, 1961 2.80 2.80 5.60 (c) Profi ts in lieu of salary u/s. 17(3) Income- tax Act, 1961 -- - 2 Stock option -- - 3 Sweat equity -- - 4 Commission - as a % of profi t* 63.00 100.00 163.00 - others -- - 5 Others - Company provided car 0.00 1.28 1.28 - Company’s contribution to PF 1.44 1.44 2.88 Total (A) 85.59 123.87 209.46 Ceiling as per the Act ` 1,708.33 million (being 10% of the net profi ts of the company calculated as per Section 198 of the Companies Act, 2013) * Commission for FY2019 will be paid in FY2020.

B) Remuneration to other directors (` MILLION) NAME OF DIRECTORS SL. PARTICULARS OF DR. TOTAL DR. OMKAR KALPANA PRASAD SRIDAR ANUPAM BHARAT LEO SHIKHA ALLAN NO. REMUNERATION BRUCE L A AMOUNT GOSWAMI MORPARIA R MENON IYENGAR PURI N DOSHI PURI(1) SHARMA(1) OBERMAN(1) CARTER 1 Independent directors - Fee for attending board ------and committee meetings - Commission# 9.68 9.68 9.34 10.44 10.20 11.48 11.07 4.84 2.59 0.87 80.19 - Others ------Total (1) 9.68 9.68 9.34 10.44 10.20 11.48 11.07 4.84 2.59 0.87 80.19

Building a winning future 101 Dr. Reddy’s Laboratories Limited

(` MILLION) NAME OF DIRECTORS SL. PARTICULARS OF DR. TOTAL DR. OMKAR KALPANA PRASAD SRIDAR ANUPAM BHARAT LEO SHIKHA ALLAN NO. REMUNERATION BRUCE L A AMOUNT GOSWAMI MORPARIA R MENON IYENGAR PURI N DOSHI PURI(1) SHARMA(1) OBERMAN(1) CARTER 2 Other non-executive directors - Fee for attending board ------and committee meetings - Commission ------Others ------Total (2) ------Total (B)=(1+2) 9.68 9.68 9.34 10.44 10.20 11.48 11.07 4.84 2.59 0.87 80.19 Overall ceiling as per Act ` 170.83 million (being 1% of the net proﬁ ts of the company calculated as per Section 198 of the Companies Act, 2013) Total managerial remuneration* (total of A and B) 289.65 * Total remuneration to managing/whole-time directors and other directors. # Commission for FY2019 will be paid in FY2020. (1) Appointed as an independent director in FY2019.

C) Remuneration to key managerial personnel other than MD/WTD/Manager

(` MILLION) KEY MANAGERIAL PERSONNEL COMPANY SL. CEO** CFO PARTICULARS OF REMUNERATION SECRETARY TOTAL AMOUNT NO. SAUMEN SANDEEP CHAKRABORTY PODDAR 1 Gross salary (a) Salary as per provisions contained in Section 17(1) of 51.39 7.86 59.25 the Income-tax Act, 1961 (b) Value of perquisites u/s. 17(2) Income-tax Act, 1961 1.34 0.32 1.66 (c) Proﬁ ts in lieu of salary u/s. 17(3) Income-tax Act, 1961 -- - 2 Stock option* 11.17 0.87 12.04 3 Sweat equity Not Applicable -- - 4 Commission -- - - as a % of proﬁ t -- - - others -- - 5 Others - Company’s contribution to PF 2.16 0.36 2.52 Total (A) 66.06 9.41 75.47 * Represents fair value on grant date, of stock options granted during FY2019. These options vest in 4 years (@25% each year) subject to continued service. ** Mr. G V Prasad is co-chairman, managing director and CEO. (Refer table VI A).

VII. PENALTIES/PUNISHMENT/COMPOUNDING OF OFFENCES DETAILS OF SECTION PENALTY/ AUTHORITY APPEAL MADE, OF THE BRIEF TYPE PUNISHMENT/ (RD/NCLT/ IF ANY (GIVE COMPANIES DESCRIPTION COMPOUNDING COURT) DETAILS) ACT FEES IMPOSED COMPANY/DIRECTORS/OTHER OFFICERS IN DEFAULT Penalty NIL Punishment Compounding

K Satish Reddy Chairman

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STANDALONE FINANCIAL STATEMENTS

Independent Auditors’ Report 104

Balance Sheet 112

Statement of Proﬁt and Loss 113

Statement of Changes in Equity 114

Statement of Cash Flows 116

Notes to Financial Statements 117

Building a winning future 103 Dr. Reddy’s Laboratories Limited

INDEPENDENT AUDITORS' REPORT

To the members of Dr. Reddy’s Laboratories Limited Report on the Audit of the Standalone Ind AS Financial Statements Opinion We have audited the accompanying standalone Ind AS fi nancial statements of Dr. Reddy’s Laboratories Limited (“the Company”), which comprise the Balance sheet as at 31 March 2019, the Statement of Profi t and Loss, including the Statement of Other Comprehensive Income, the Statement of Cash Flows and the Statement of Changes in Equity for the year then ended, and notes to the fi nancial statements, including a summary of signifi cant accounting policies and other explanatory information. In our opinion and to the best of our information and according to the explanations given to us, the aforesaid standalone Ind AS fi nancial statements give the information required by the Companies Act, 2013, as amended (“the Act”) in the manner so required and give a true and fair view in conformity with the accounting principles generally accepted in India, of the state of aff airs of the Company as at 31 March 2019, its profi t including other comprehensive income, its cash fl ows and the changes in equity for the year ended on that date. Basis for Opinion We conducted our audit of the standalone Ind AS fi nancial statements in accordance with the Standards on Auditing (SAs), as specifi ed under section 143(10) of the Act. Our responsibilities under those Standards are further described in the ‘Auditors' Responsibilities for the Audit of the Standalone Ind AS Financial Statements’ section of our report. We are independent of the Company in accordance with the ‘Code of Ethics’ issued by the Institute of Chartered Accountants of India together with the ethical requirements that are relevant to our audit of the standalone Ind AS fi nancial statements under the provisions of the Act and the Rules thereunder, and we have fulfi lled our other ethical responsibilities in accordance with these requirements and the Code of Ethics. We believe that the audit evidence we have obtained is suffi cient and appropriate to provide a basis for our audit opinion on the standalone Ind AS financial statements. Key Audit Matters Key audit matters are those matters that, in our professional judgment, were of most signifi cance in our audit of the standalone Ind AS fi nancial statements for the fi nancial year ended 31 March 2019. These matters were addressed in the context of our audit of the standalone Ind AS fi nancial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. For each matter below, our description of how our audit addressed the matter is provided in that context. We have determined the matters described below to be the key audit matters to be communicated in our report. We have fulfi lled the responsibilities described in the Auditors' responsibilities for the audit of the standalone Ind AS fi nancial statements section of our report, including in relation to these matters. Accordingly, our audit included the performance of procedures designed to respond to our assessment of the risks of material misstatement of the standalone Ind AS fi nancial statements. The results of our audit procedures, including the procedures performed to address the matters below, provide the basis for our audit opinion on the accompanying standalone Ind AS fi nancial statements.

Key audit matters How our audit addressed the key audit matter Carrying value of intangible assets, intangible assets under development and goodwill (as described in note 1.3(f) and 1.3(i) of the signifi cant accounting policies, and note 2.3 and 2.2 for details and movement in goodwill and intangible assets respectively in the standalone Ind AS fi nancial statements) As at 31 March 2019, the Company has ` 7,000 Our audit procedures included the following: million of intangible assets and ` 323 million of We evaluated the design and tested the operating eff ectiveness of management’s controls in goodwill. The carrying value of these intangible assessing the carrying value of goodwill and intangible assets. assets are based on future cash fl ows and there is a risk that the assets maybe impaired if cash We assessed the Company’s methodology applied in determining the CGUs to which goodwill fl ows are not in line with projections. is allocated. Valuation of goodwill and intangible assets We assessed the Company’s valuation methodology applied in deriving the recoverable value. is subject to management's assessment of We evaluated the assumptions applied to key inputs such as discount rates, sales volume and recoverable amount, being the higher of the prices, long term growth rates and terminal values, which included comparing these inputs value in use and fair value less costs to sell, with assumptions made by the management in prior years. involving signifi cant judgment and are based We discussed potential changes in key drivers as compared to previous year / actual on number of variables and estimates including performance with management to evaluate whether the inputs and assumptions used in the projection of future sales, operating costs and cash fl ow forecasts were suitable. profi t margins; appropriate discount rate and We tested the arithmetical accuracy of the models. terminal value growth rate; and probability of technical and regulatory success factors We also assessed the recoverable value headroom by performing sensitivity testing of key in applying discounted cash fl ow valuation assumptions used. methodology. We evaluated the adequacy of fi nancial statement disclosures, including disclosures of key assumptions, judgements and sensitivities.

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INDEPENDENT AUDITORS' REPORT (CONTINUED)

Key audit matters How our audit addressed the key audit matter Contingencies, including litigations and tax (as described in note 1.3(k) of the signifi cant accounting policies, and note 2.30(A) containing details of contingencies in the standalone Ind AS fi nancial statements) The Company is involved in disputes, lawsuits, Our audit procedures included the following: claims, anti-trust, governmental and / or We evaluated the design and tested the operating eff ectiveness of controls relating to regulatory inspections, inquiries, investigations identifi cation and evaluation of claims, proceedings and investigations at diff erent levels in and proceedings, including patent, tax and the Company, and the measurement of provisions for disputes, potential claims and litigation, commercial matters that arise from time to contingent liabilities and disclosures. time in the ordinary course of business. Most We obtained a list of ongoing litigations from the Company’s in house legal counsel. We of the claims involve complex issues. The selected a sample of litigations based on materiality and performed inquiries with the said Company, assisted by their external legal counsel on the legal evaluation of these litigations. We have compared the said evaluation with counsel assesses the need to make provision the provision or disclosure in the standalone Ind AS fi nancial statements. We have tested the or disclose a contingency on a case-to-case underlying computation of the management in relation to the measurement of provision or the basis considering the underlying facts of each contingency. litigation. The aforesaid assessment may result in an incorrect disclosure or provision in the We solicited legal letters from the Company’s external legal advisors with respect to the matters books of account. included in the summary. Where appropriate we examined correspondences connected with the cases. This area is signifi cant to our audit, since the accounting and disclosure for contingent legal We obtained the details of tax assessments and demands as at the year ended and tax liabilities is complex and judgemental 31 March 2019. We inspected relevant communication with tax authorities. We involved tax (due to the diffi culty in predicting the outcome experts in assessing the nature and amount of the tax exposures and assessed management’s of the matter and estimating the potential conclusions on whether exposures are probable, contingent or remote. Where exposures are impact if the outcome is unfavourable), and the assessed as probable, we evaluated the amounts provided with respect to those exposures. amounts involved are, or can be, material to the We also evaluated the adequacy of disclosures in the standalone Ind AS fi nancial statements. standalone Ind AS fi nancial statements. Rebates, discounts, returns etc. in Revenue (as described in note 1.3(l) of the signifi cant accounting policies of standalone Ind AS fi nancial statements and note 2.11 of the standalone Ind AS fi nancial statements) Revenue is recognised net of accrual for sales Our audit procedures included the following: returns, rebates & discounts, etc. The estimates We assessed and performed test of controls over the completeness, recognition and relating to the accruals are important given measurement of accruals. the signifi cance of revenue and considering We obtained Management’s calculations for accruals and assessed the assumptions used by the distinctive terms of arrangement with reference to the company’s stated commercial policies, the terms of the applicable contracts. customers. These estimates are complex and requires signifi cant judgement and estimation We assessed management analysis of the historical pattern of accruals to validate by the Company for establishing an appropriate management’s assumption for creation of such provisions. accrual. Accuracy of revenues may deviate We compared the assumptions to contracted prices, historical rebates, discounts, allowances because change in judgements and estimates. and returns, where relevant and to current payment trends. We also considered the historical Accordingly, the same has been considered as accuracy of the management’s estimates in prior years. We have also performed procedures a key audit matter. to test recording of revenue in appropriate period which includes: o Verifying sample sales transactions near period-end. o Evaluating the level of returns following the period end and compared to previous periods. Recognition, measurement, presentation and disclosures of revenues and other related balances in view of adoption of Ind AS 115, Revenue from Contracts with Customers (as described in note 1.3(a) of the signifi cant accounting policies of standalone Ind AS fi nancial statements) The Company has adopted Ind AS 115, Revenue Our audit procedures included the following: from Contracts with Customers, starting We considered the Company’s revenue recognition accounting policies based on the principles 1 April 2018. The adoption of the new revenue in Ind AS 115. accounting standard involves application of We evaluated the design, implementation and eff ective operation of the internal controls certain key principles relating to identifi cation relating to implementation of the new revenue accounting standard. of performance obligations, determination of transaction price of the identifi ed performance We selected samples of continuing and new contracts and performed the following procedures: obligations, the timing of transfer of control for o Read, analysed and identifi ed the distinct performance obligations in these contracts. recognition of revenue or the appropriateness of o Compared these performance obligations with that identifi ed and recorded by the the basis used to measure revenue recognized Company. over a period. Additionally, new revenue o Considered the terms of the contracts to determine the transaction price including any accounting standard contains new disclosures. variable consideration to verify the transaction price used to compute revenue. o Evaluated management assessment of point of recognition of revenue based on transfer of control or satisfaction of obligations over time. We evaluated the adequacy of fi nancial statement disclosures, pursuant to new revenue accounting standard. Other Information The Company’s Board of Directors is responsible for the other information. The other information comprises, Statutory reports, corporate governance and Board’s report included in the Annual report, but does not include the standalone Ind AS fi nancial statements and our auditors' report thereon, which we obtained prior to the date of this auditors' report, and Corporate Overview and letter from Chairman and Co-Chairman included in the Annual report, which is expected to be made available to us after that date.

Building a winning future 105 Dr. Reddy’s Laboratories Limited

INDEPENDENT AUDITORS' REPORT (CONTINUED)

Our opinion on the standalone Ind AS fi nancial statements does not cover the other information and we do not and will not express any form of assurance conclusion thereon. In connection with our audit of the standalone Ind AS fi nancial statements, our responsibility is to read the other information identifi ed above and, in doing so, consider whether such other information is materially inconsistent with the standalone Ind AS fi nancial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. Responsibilities of Management for the Standalone Ind AS Financial Statements The Company’s Board of Directors is responsible for the matters stated in section 134(5) of the Act with respect to the preparation of these standalone Ind AS fi nancial statements that give a true and fair view of the fi nancial position, fi nancial performance including other comprehensive income, cash fl ows and changes in equity of the Company in accordance with the accounting principles generally accepted in India, including the Indian Accounting Standards (Ind AS) specifi ed under section 133 of the Act read with the Companies (Indian Accounting Standards) Rules, 2015, as amended. This responsibility also includes maintenance of adequate accounting records in accordance with the provisions of the Act for safeguarding of the assets of the Company and for preventing and detecting frauds and other irregularities; selection and application of appropriate accounting policies; making judgments and estimates that are reasonable and prudent; and the design, implementation and maintenance of adequate internal fi nancial controls, that were operating eff ectively for ensuring the accuracy and completeness of the accounting records, relevant to the preparation and presentation of the standalone Ind AS fi nancial statements that give a true and fair view and are free from material misstatement, whether due to fraud or error. In preparing the standalone Ind AS fi nancial statements, management is responsible for assessing the Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so. Those Board of Directors are also responsible for overseeing the Company’s fi nancial reporting process. Auditors' Responsibilities for the Audit of the Standalone Ind AS Financial Statements Our objectives are to obtain reasonable assurance about whether the standalone Ind AS fi nancial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors' report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with SAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to infl uence the economic decisions of users taken on the basis of these standalone Ind AS fi nancial statements. As part of an audit in accordance with SAs, we exercise professional judgment and maintain professional scepticism throughout the audit. We also:

Identify and assess the risks of material misstatement of the standalone Ind AS ﬁ nancial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is suffi cient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances. Under section 143(3)(i) of the Act, we are also responsible for expressing our opinion on whether the Company has adequate internal ﬁ nancial controls system in place and the operating eff ectiveness of such controls.

Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.

Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast signiﬁ cant doubt on the Company’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditors' report to the related disclosures in the standalone Ind AS ﬁ nancial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditors' report. However, future events or conditions may cause the Company to cease to continue as a going concern.

Evaluate the overall presentation, structure and content of the standalone Ind AS ﬁ nancial statements, including the disclosures, and whether the standalone Ind AS ﬁ nancial statements represent the underlying transactions and events in a manner that achieves fair presentation.

We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and signifi cant audit fi ndings, including any signifi cant defi ciencies in internal control that we identify during our audit.

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INDEPENDENT AUDITORS' REPORT (CONTINUED)

We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. From the matters communicated with those charged with governance, we determine those matters that were of most signifi cance in the audit of the standalone Ind AS fi nancial statements for the fi nancial year ended 31 March 2019 and are therefore the key audit matters. We describe these matters in our auditors' report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefi ts of such communication. Report on Other Legal and Regulatory Requirements 1. As required by the Companies (Auditor's Report) Order, 2016 (“the Order”), issued by the Central Government of India in terms of sub-section (11) of section 143 of the Act,based on our audit we give in the “Annexure 1”a statement on the matters specifi ed in paragraphs 3 and 4 of the Order. 2. As required by Section 143(3) of the Act, we report that: a) We have sought and obtained all the information and explanations which to the best of our knowledge and belief were necessary for the purposes of our audit; b) In our opinion, proper books of account as required by law have been kept by the Company so far as it appears from our examination of those books; c) The Balance Sheet, the Statement of Profi t and Loss including the Statement of Other Comprehensive Income, the Statement of Cash Flows and the Statement of Changes in Equity dealt with by this Report are in agreement with the books of account; d) In our opinion, the aforesaid standalone Ind AS fi nancial statements comply with the Accounting Standards specifi ed under Section 133 of the Act, read with Companies (Indian Accounting Standards) Rules, 2015, as amended; e) On the basis of the written representations received from the directors as on 31 March 2019 taken on record by the Board of Directors, none of the directors is disqualifi ed as on 31 March 2019 from being appointed as a director in terms of Section 164 (2) of the Act; f) With respect to the adequacy of the internal fi nancial controls over fi nancial reporting of the Company with reference to these standalone Ind AS fi nancial statements and the operating eff ectiveness of such controls, refer to our separate Report in “Annexure 2” to this report; g) In our opinion, the managerial remuneration for the year ended 31 March 2019 has been paid / provided by the Company to its directors in accordance with the provisions of section 197 read with Schedule V to the Act; h) With respect to the other matters to be included in the Auditors' Report in accordance with Rule 11 of the Companies (Audit and Auditors) Rules, 2014, as amended in our opinion and to the best of our information and according to the explanations given to us: (i) The Company has disclosed the impact of pending litigations on its fi nancial position in its standalone Ind AS fi nancial statements – Refer note 2.30(A) to the standalone Ind AS fi nancial statements; (ii) The Company has made provision, as required under the applicable law or accounting standards, for material foreseeable losses, if any, on long-term contracts including derivative contracts; (iii) There has been no delay in transferring amounts, required to be transferred, to the Investor Education and Protection Fund by the Company.

for S.R. Batliboi & Associates LLP Chartered Accountants ICAI Firm Registration Number: 101049W/E300004 per S Balasubrahmanyam Partner Membership Number: 53315 Place : Hyderabad Date : 17 May 2019

Building a winning future 107 Dr. Reddy’s Laboratories Limited

ANNEXURE 1 TO THE INDEPENDENT AUDITORS' REPORT OF EVEN DATE ON THE STANDALONE IND AS FINANCIAL STATEMENTS OF DR. REDDY’S LABORATORIES LIMITED

(i) (a) The Company has maintained proper records showing full particulars, including quantitative details and situation of fi xed assets. (b) All fi xed assets have not been physically verifi ed by the management during the year but there is a regular programme of verifi cation which, in our opinion, is reasonable having regard to the size of the Company and the nature of its assets. No material discrepancies were noticed on such verifi cation. (c) According to the information and explanations given by the management, the title deeds of immovable properties included in property, plant and equipment are held in the name of the Company. (ii) The management has conducted physical verifi cation of inventory at reasonable intervals during the year and no material discrepancies were noticed on such physical verifi cation. Inventories lying with third parties have been confi rmed by them as at 31 March 2019 and no material discrepancies were noticed in respect of such confi rmations. (iii) According to the information and explanations given to us, the Company has not granted any loans, secured or unsecured to companies, fi rms, limited liability partnerships or other parties covered in the register maintained under section 189 of the Companies Act, 2013. Accordingly, the provisions of clause 3 (iii) (a), (b) and (c) of the Order are not applicable to the Company and hence not commented upon. (iv) In our opinion and according to the information and explanations given to us, the Company has not advanced loans to directors / to a company in which the Director is interested to which provisions of section 185 of the Companies Act, 2013 apply and hence not commented upon. In our opinion and according to the information and explanations given to us, the Company has made investments and given guarantees/provided security which is in compliance with the provisions of section 186 of the Companies Act, 2013. (v) The Company has not accepted any deposits within the meaning of Sections 73 to 76 of the Act and the Companies (Acceptance of Deposits) Rules, 2014 (as amended). Accordingly, the provisions of clause 3(v) of the Order are not applicable. (vi) We have broadly reviewed the books of account maintained by the Company pursuant to the rules made by the Central Government for the maintenance of cost records under section 148(1) of the Companies Act, 2013, and are of the opinion that prima facie, the specifi ed accounts and records have been made and maintained. We have not, however, made a detailed examination of the same. (vii) (a) The Company is regular in depositing with appropriate authorities undisputed statutory dues including provident fund, employees’ state insurance, income-tax, sales-tax, service tax, duty of custom, duty of excise, value added tax, goods and service tax, cess and other statutory dues applicable to it. (b) According to the information and explanations given to us, no undisputed amounts payable in respect of provident fund, employees’ state insurance, income-tax, service tax, sales-tax, duty of custom, duty of excise, value added tax, goods and service tax, cess and other statutory dues were outstanding, at the year end, for a period of more than six months from the date they became payable. (c) According to the records of the Company, the dues of income-tax, sales-tax, service tax, duty of custom, duty of excise, value added tax and cess on account of any dispute, are as set out in Appendix 1. (viii) In our opinion and according to the information and explanations given by the management, the Company has not defaulted in repayment of loans or borrowing to banks or government. There are no dues which are payable to fi nancial institutions. The Company did not have any debenture holders during the year. (ix) According to the information and explanations given by the management, the Company has not raised any money by way of initial public off er / further public off er / debt instruments and term loans hence, reporting under clause (ix) is not applicable to the Company and hence not commented upon. (x) Based upon the audit procedures performed for the purpose of reporting the true and fair view of the standalone Ind AS fi nancial statements and according to the information and explanations given by the management, we report that no fraud by the Company or no material fraud on the Company by the offi cers and employees of the Company has been noticed or reported during the year. (xi) According to the information and explanations given by the management, the managerial remuneration has been paid / provided in accordance with the requisite approvals mandated by the provisions of section 197 read with Schedule V to the Companies Act, 2013. (xii) In our opinion, the Company is not a nidhi company. Therefore, the provisions of clause 3 (xii) of the order are not applicable to the Company and hence not commented upon. (xiii) According to the information and explanations given by the management, transactions with the related parties are in compliance with section 177 and 188 of Companies Act, 2013 where applicable and the details have been disclosed in the notes to the standalone Ind AS fi nancial statements, as required by the applicable accounting standards.

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ANNEXURE 1 TO THE INDEPENDENT AUDITORS' REPORT OF EVEN DATE ON THE STANDALONE IND AS FINANCIAL STATEMENTS OF DR. REDDY’S LABORATORIES LIMITED (CONTINUED)

(xiv) According to the information and explanations given to us and on an overall examination of the balance sheet, the Company has not made any preferential allotment or private placement of shares or fully or partly convertible debentures during the year under review and hence, reporting requirements under clause 3(xiv) are not applicable to the Company and, not commented upon. (xv) According to the information and explanations given by the management, the Company has not entered into any non-cash transactions with directors or persons connected with him as referred to in section 192 of Companies Act, 2013. (xvi) According to the information and explanations given to us, the provisions of section 45-IA of the Reserve Bank of India Act, 1934 are not applicable to the Company.

for S.R. Batliboi & Associates LLP Chartered Accountants ICAI Firm Registration Number: 101049W/E300004 per S Balasubrahmanyam Partner Membership Number: 53315 Place : Hyderabad Date : 17 May 2019

Appendix 1 as referred to in paragraph vii(c) of Annexure 1 to Independent Auditors’ Report

Disputed Amount paid Period to which Nature of Name of the statute amount under protest the amount Forum where dispute is pending the dues in ` million in ` million relates 1,726 2001-2017 Appellate Authority – upto Commissioners Excise Duty, Interest Central Excise Act, 1944 510 178 1998-2017 CESTAT and Penalty 58 2002-2008 High Court 37 2010-2011 Appellate Authority – upto Commissioners Customs Act, 1962 Customs Duty 6 6 2004-2005 High Court Cenvat Credit of 863 2005- 2016 CESTAT Service Tax, Interest Finance Act, 1994 and Penalty 639 155 2005- 2016 Appellate Authority – upto Commissioners Service Tax and 177 2010-2015 CESTAT Penalty 231 2015-2017 Appellate Authority – upto Commissioners Central Sales Tax Act and 103 2002-2018 Sales Tax Appellate Tribunal Sales Tax and Sales Tax Acts of various 203 211 2003-2018 Appellate Tribunal - upto Commissioner Penalty States 75 2007-2014 High Court Income Tax Act, 1961 Income Tax 2 - 2002-2003 High Court

Building a winning future 109 Dr. Reddy’s Laboratories Limited

ANNEXURE 2 TO THE INDEPENDENT AUDITORS' REPORT OF EVEN DATE ON THE STANDALONE IND AS FINANCIAL STATEMENTS OF DR. REDDY’S LABORATORIES LIMITED

Report on the Internal Financial Controls under Clause (i) of Sub-section 3 of Section 143 of the Companies Act, 2013 (“the Act”) We have audited the internal fi nancial controls over fi nancial reporting of Dr. Reddy’s Laboratories Limited (“the Company”) as of 31 March 2019 in conjunction with our audit of the standalone Ind AS fi nancial statements of the Company for the year ended on that date. Management’s Responsibility for Internal Financial Controls The Company’s Management is responsible for establishing and maintaining internal fi nancial controls based on the internal control over fi nancial reporting criteria established by the Company considering the essential components of internal control stated in the Guidance Note on Audit of Internal Financial Controls Over Financial Reporting issued by the Institute of Chartered Accountants of India. These responsibilities include the design, implementation and maintenance of adequate internal fi nancial controls that were operating eff ectively for ensuring the orderly and effi cient conduct of its business, including adherence to the Company’s policies, the safeguarding of its assets, the prevention and detection of frauds and errors, the accuracy and completeness of the accounting records, and the timely preparation of reliable fi nancial information, as required under the Act. Auditors' Responsibility Our responsibility is to express an opinion on the Company's internal fi nancial controls over fi nancial reporting with reference to these standalone Ind AS fi nancial statements based on our audit. We conducted our audit in accordance with the Guidance Note on Audit of Internal Financial Controls Over Financial Reporting (the “Guidance Note”) and the Standards on Auditing as specifi ed under section 143(10) of the Act, to the extent applicable to an audit of internal fi nancial controls and, both issued by the Institute of Chartered Accountants of India. Those Standards and the Guidance Note require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether adequate internal fi nancial controls over fi nancial reporting with reference to these standalone Ind AS fi nancial statements was established and maintained and if such controls operated eff ectively in all material respects. Our audit involves performing procedures to obtain audit evidence about the adequacy of the internal fi nancial controls over fi nancial reporting with reference to these standalone Ind AS fi nancial statements and their operating eff ectiveness. Our audit of internal fi nancial controls over fi nancial reporting included obtaining an understanding of internal fi nancial controls over fi nancial reporting with reference to these standalone Ind AS fi nancial statements, assessing the risk that a material weakness exists, and testing and evaluating the design and operating eff ectiveness of internal control based on the assessed risk. The procedures selected depend on the auditors' judgement, including the assessment of the risks of material misstatement of the standalone Ind AS fi nancial statements, whether due to fraud or error. We believe that the audit evidence we have obtained is suffi cient and appropriate to provide a basis for our audit opinion on the internal fi nancial controls over fi nancial reporting with reference to these standalone Ind AS fi nancial statements. Meaning of Internal Financial Controls Over Financial Reporting With Reference to these Standalone Ind AS Financial Statements A company's internal fi nancial control over fi nancial reporting with reference to these standalone Ind AS fi nancial statements is a process designed to provide reasonable assurance regarding the reliability of fi nancial reporting and the preparation of standalone Ind AS fi nancial statements for external purposes in accordance with generally accepted accounting principles. A company's internal fi nancial control over fi nancial reporting with reference to these standalone Ind AS fi nancial statements includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly refl ect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of standalone Ind AS fi nancial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorisations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorised acquisition, use, or disposition of the company's assets that could have a material eff ect on the standalone Ind AS fi nancial statements. Inherent Limitations of Internal Financial Controls Over Financial Reporting With Reference to these Standalone Ind AS Financial Statements Because of the inherent limitations of internal fi nancial controls over fi nancial reporting with reference to these standalone Ind AS fi nancial statements, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may occur and not be detected. Also, projections of any evaluation of the internal fi nancial controls over fi nancial reporting with reference to these standalone Ind AS fi nancial statements to future periods are subject to the risk that the internal fi nancial control over fi nancial reporting with reference to these standalone Ind AS fi nancial statements may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

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Standalone

ANNEXURE 2 TO THE INDEPENDENT AUDITORS' REPORT OF EVEN DATE ON THE STANDALONE IND AS FINANCIAL STATEMENTS OF DR. REDDY’S LABORATORIES LIMITED (CONTINUED)

Opinion In our opinion, the Company has, in all material respects, adequate internal fi nancial controls over fi nancial reporting with reference to these standalone Ind AS fi nancial statements and such internal fi nancial controls over fi nancial reporting with reference to these standalone Ind AS fi nancial statements were operating eff ectively as at 31 March 2019, based on the internal control over fi nancial reporting criteria established by the Company considering the essential components of internal control stated in the Guidance Note on Audit of Internal Financial Controls Over Financial Reporting issued by the Institute of Chartered Accountants of India.

for S.R. Batliboi & Associates LLP Chartered Accountants ICAI Firm Registration Number: 101049W/E300004 per S Balasubrahmanyam Partner Membership Number: 53315 Place : Hyderabad Date : 17 May 2019

Building a winning future 111 Dr. Reddy’s Laboratories Limited

BALANCE SHEET

(All amounts in Indian Rupees millions, except share data and where otherwise stated)

As at As at Particulars Note 31 March 2019 31 March 2018 Assets Non-current assets Property, plant and equipment 2.1 39,504 39,790 Capital work-in-progress 4,001 6,750 Goodwill 2.2 323 323 Other intangible assets 2.3 7,000 7,060 Financial assets Investments 2.4 A 18,191 19,537 Trade receivables 2.4 B 113 169 Loans 2.4 C 332 1,991 Other ﬁ nancial assets 2.4 D 447 437 Deferred tax assets, net 2.25 - 931 Tax assets, net 3,106 3,518 Other non-current assets 2.5 A 126 112 73,143 80,618 Current assets Inventories 2.6 20,156 18,568 Financial assets Investments 2.4 A 21,144 16,828 Trade receivables 2.4 B 37,177 42,038 Derivative instruments 335 17 Cash and cash equivalents 2.4 E 1,132 1,207 Other ﬁ nancial assets 2.4 D 692 509 Other current assets 2.5 B 8,696 11,218 89,332 90,385 Total assets 162,475 171,003

Equity and Liabilities Equity Equity share capital 2.7 830 830 Other equity 126,011 117,248 126,841 118,078 Liabilities Non-current liabilities Financial liabilities Borrowings 2.8 A 3,454 4,880 Provisions 2.9 A 547 533 Deferred tax liabilities, net 2.25 555 - Other non-current liabilities 2.10 A 285 313 4,841 5,726 Current liabilities Financial liabilities Borrowings 2.8 B 5,463 21,008 Trade payables 2.8 C Total outstanding dues of micro enterprises and small enterprises 77 93 Total outstanding dues of creditors other than micro enterprises and small enterprises 10,239 10,517 Derivative instruments 45 85 Other ﬁ nancial liabilities 2.8 D 10,160 11,386 Provisions 2.9 B 1,847 1,734 Other current liabilities 2.10 B 2,962 2,376 30,793 47,199 Total equity and liabilities 162,475 171,003 The accompanying notes are an integral part of the ﬁ nancial statements. As per our report of even date attached for S.R. Batliboi & Associates LLP for and on behalf of the Board of Directors of Dr. Reddy’s Laboratories Limited Chartered Accountants ICAI Firm registration number: 101049W/E300004 per S Balasubrahmanyam Partner K Satish Reddy Chairman Membership No.: 53315 G V Prasad Co-Chairman & Chief Executive Offi cer Place : Hyderabad Saumen Chakraborty Chief Financial Offi cer Date : 17 May 2019 Sandeep Poddar Company Secretary

112 Company Overview Statutory Reports Financial Statements Annual Report 2018-19

Standalone STATEMENT OF PROFIT AND LOSS

(All amounts in Indian Rupees millions, except share data and where otherwise stated)

For the year ended For the year ended Particulars Note 31 March 2019 31 March 2018 Income Sales 2.11 104,667 92,468 Service income and License fees 2.11 1,062 558 Other operating income 2.12 526 567 Total revenue from operations 106,255 93,593 Other income 2.13 2,384 2,040 Total income 108,639 95,633

Expenses Cost of materials consumed 21,032 20,110 Purchase of stock-in-trade 8,686 6,716 Changes in inventories of ﬁ nished goods, work-in-progress and stock-in-trade 2.14 660 (516) Employee beneﬁ ts expense 2.15 19,319 18,430 Depreciation and amortisation expense 2.16 7,806 7,741 Finance costs 2.17 568 628 Selling and other expenses 2.18 33,561 35,554 Total expenses 91,632 88,663

Proﬁ t before tax 17,007 6,970 Tax expense 2.25 Current tax 2,818 1,381 Deferred tax 1,416 (80) Proﬁ t for the year 12,773 5,669

Other comprehensive income (OCI) Items that will not be reclassifi ed subsequently to profi t or loss (1) 43 Income tax on items that will not be reclassifi ed subsequently to profi t or loss 3 (16) 2 27 Items that will be reclassifi ed subsequently to profi t or loss 209 (133) Income tax on items that will be reclassifi ed subsequently to profi t or loss (73) 46 136 (87)

Total other comprehensive income/(loss) for the year, net of tax 138 (60)

Total comprehensive income for the year 12,911 5,609

Earnings per share: 2.21 Basic earnings per share of ` 5/- each 76.98 34.19 Diluted earnings per share of ` 5/- each 76.85 34.12 The accompanying notes are an integral part of the ﬁ nancial statements.

As per our report of even date attached for S.R. Batliboi & Associates LLP for and on behalf of the Board of Directors of Dr. Reddy’s Laboratories Limited Chartered Accountants ICAI Firm registration number: 101049W/E300004 per S Balasubrahmanyam Partner K Satish Reddy Chairman Membership No.: 53315 G V Prasad Co-Chairman & Chief Executive Offi cer Place : Hyderabad Saumen Chakraborty Chief Financial Offi cer Date : 17 May 2019 Sandeep Poddar Company Secretary

Building a winning future 113 Dr. Reddy’s Laboratories Limited - - - 8 (6) Total Total Total Total 136 389 equity equity (535) 12,911 5,609 12,773 12,773 (4,148) (4,148) (3,537) (3,537) (4,002) 118,078 126,841 116,006 (9) (9) - (3,992) - - 1 454 - - - - (5) - 5,669 ------(6) (6) 32 ned ned ts plan ts plan benefi benefi Remeasurements Remeasurements Remeasurements Remeasurements of the net defi of the net defi (8) (8) equity equity FVTOCI** FVTOCI** FVTOCI** FVTOCI** instruments instruments (7) (7) ow ow Other comprehensive income hedge hedge reserve reserve Cash fl Cash fl earnings earnings Retained Retained Retained Retained (6) (6) General General reserve reserve (5) (5) (All amounts in Indian Rupees millions, except share data and where otherwise stated) (All amounts in Indian Rupees millions, except Capital Capital Other components of equity Other components of equity reserve reserve redemption redemption (4) (4) Capital Capital reserve reserve (3) (3) Reserves and surplusReserves Other comprehensive income Reserves and surplus Reserves payment payment reserve reserve Share-based Share-based (2) (2) Securities Securities premium premium (1) (1) - - - - - 420 (420) ------8 ------432 - - 432 - 22 - 22 - - - - 5,669 - - (87) - - - (3,992) (5) - - (3,992) ------reasury shares shares Treasury T ------5,669 ------12,773 ------12,773 136 8 ------(535) 420 (31) - - - (4,002) - - - (535) 420 (31) - - - (4,002) ------136 - - - - - (535) ------(87) - - (87) ------32 32 ------(5) - 1 1 - 432 (432) ------1 -* share share 830 - 5,211 826 267 25 20,302 90,740 (5) (2) (116) 829 - 4,779 804 267 25 20,302 89,063 82 3 (148) 830 (535) 5,631 795 267 25 20,302 99,511 131 6 (122) 830 - 5,211 826 267 25 20,302 90,740 (5) (2) (116) 118,078 Equity Equity capital capital

t t ow ow efer note 2.24) Nil 16 (Refer note 2.24) 16 (Refer ` ` Nil ` 3 (R ` 46 (Refer note 2.28) 46 (Refer ` t of t of t of t of to millions. t for the year t for the year

ective portion of changes in fair value cash fl efer note 2.7) efer note 2.7) ransactions with owners of the Company otal comprehensive income (B) otal contributions and distributions Contributions and distributions of options Issue of equity shares on exercise (R T Changes in ownership interests Balance as at 31 March 2019 [(A)+(B)+(C)] equity Net change in fair value of FVTOCI** instruments, net of tax benefi Profi Actuarial gain/(loss) on post-employment benefi obligations, net of tax benefi note 2.23)Share-based payment expense (Refer Dividend paid (including dividend distribution tax) ------389 Profi ------with owners of the Company Transactions Contributions and distributions - - of options Issue of equity shares on exercise (4,002)(R note 2.23)Share-based payment expense (Refer Dividend paid (including dividend distribution tax) - contributions and distributions Total - Changes in ownership interests - - Balance as at 31 March 2018 [(A)+(B)+(C)] ------454 ------(3,992) - - - - - 73 (Refer note 2.28) hedges, net of tax expense ` 73 (Refer Particulars Balance as at 1 April 2018 (A) ective portion of changes in fair value cash fl transactions with owners of the Company (C ) Total Particulars Balance as at 1 April 2017 (A) Net change in fair value of FVTOCI** equity Net change in fair value of FVTOCI** instruments, net of tax benefi Eff T Purchase of treasury shares T transactions with owners of the Company (C ) Total Actuarial gain/(loss) on post-employment benefi obligations, net of tax expense Total comprehensive income (B) Total Eff hedges, net of tax benefi STATEMENT OF CHANGES IN EQUITY STATEMENT * Rounded off * Rounded ** represents fair value through other comprehensive income. FVTOCI

114 Company Overview Statutory Reports Financial Statements Annual Report 2018-19

Standalone ed subsequently to the Chairman Officer Co-Chairman & Chief Executive Chief Financial Officer Company Secretary (All amounts in Indian Rupees millions, except share data and where otherwise stated) (All amounts in Indian Rupees millions, except (CONTINUED) Dr. Reddy’s Laboratories Limited Laboratories Reddy’s for and on behalf of the Board Directors Dr. G V Prasad Saumen Chakraborty Sandeep Poddar K Satish Reddy t and loss in the period which hedged transaction occurs. . nancial statements for further details on the Dr. Reddy’s Employees Stock Option Scheme, 2018. Option Scheme, Employees Stock Reddy’s nancial statements for further details on the Dr. ed to the statement of profi ective portion of gains or losses arising on changes in fair value designated hedging instruments entered nancial statements. note 2.24 for further ts plan reserve comprises the cumulative net gains/ losses on actuarial valuation of post-employment obligations. Refer ned benefi ned t or loss on purchase, sale, issue or cancellation of the Company’s own equity instruments to capital reserve. issue or cancellation of the Company’s sale, t or loss on purchase, ed to retained earnings when those assets have been disposed off t and loss. ow hedges. Such gains or losses will be reclassifi ow hedging reserve represents the cumulative eff details. to support the Dr. Reddy’s Employees Stock Option Scheme, 2018 by acquiring, including through secondary market acquisitions, equity shares which are used for issuance to eligible 2018 by acquiring, including through secondary market acquisitions, equity Option Scheme, Employees Stock Reddy’s to support the Dr. note 2.23 of these fi Refer of stock options thereunder. employees upon exercise value of the shares so purchased is transferred to capital redemption reserve. The reserve is utilised in accordance with the provisions of Section 69 the Companies Act, 2013. The reserve is utilised in accordance with the provisions value of the shares so purchased is transferred to capital redemption reserve. details of these plans. amounts reclassifi transfer from one component of equity to another and is not an item of other comprehensive income, items included in the general reserve will not be reclassifi transfer from one component of equity to another and is not an item other comprehensive income, statement of profi into for cash fl ts from retained earnings for appropriation purposes. As the general reserve is created by a The general reserve is a free which used from time to transfer profi of the net defi Remeasurements securities premium. A sum equal to the nominal As per Companies Act, 2013, capital redemption reserve is created when company purchases its own shares out of free reserves or of Section 52 the Companies Act, 2013. Securities premium reserve is used to record the on issue of shares. The utilised in accordance with provisions net of This reserve represents the cumulative gains and losses arising on revaluation of equity instruments measured at fair value through other comprehensive income (FVTOCI), The Company recognises profi note 2.23 for further of their remuneration. Refer Share-based payment reserve is used to recognise the value of equity-settled share-based payments provided employees as part The cash fl was formed (the “ESOS Trust”) Employees ESOS Trust Reddy’s Pursuant to the special resolution approved by shareholders in Annual General Meeting held on 27 July 2018, Dr. Membership No.: 53315 Membership No.: Hyderabad Place : Date : 17 May 2019 As per our report of even date attached for S.R. Batliboi & Associates LLP Chartered Accountants ICAI Firm registration number: 101049W/E300004 per S Balasubrahmanyam Partner STATEMENT OF CHANGES IN EQUITY STATEMENT The accompanying notes are an integral part of the fi (1) (2) (3) (4) (5) (6) (7) (8) (9)

Building a winning future 115 Dr. Reddy’s Laboratories Limited

STATEMENT OF CASH FLOWS

(All amounts in Indian Rupees millions, except share data and where otherwise stated)

For the year ended For the year ended Particulars 31 March 2019 31 March 2018 Cash fl ows from/(used in) operating activities Profi t before tax 17,007 6,970 Adjustments: Depreciation and amortisation expense 7,806 7,741 Impairment loss on other intangible assets 24 53 Equity settled share-based payment expense 389 454 Fair value gain on fi nancial instruments at fair value through profi t or loss (221) (33) Foreign exchange loss/(gain), net 2,455 (665) (Profi t)/loss on sale/disposal of property , plant and equipment and other intangible assets, net (400) 55 Interest income (812) (649) Finance costs 568 628 Profi t on sale of mutual funds, net (448) (779) Refund liability 1,090 1,105 Inventory write-downs 2,085 1,965 Allowances for credit losses, net 212 (12) Allowances for doubtful advances, net (351) (36) Loss on sale of non-current investments - 341 Provision/(reversal of provision) relating to non-current investments 359 (525) Changes in operating assets and liabilities: Trade receivables 3,457 3,361 Inventories (3,673) (2,436) Trade payables (201) 2,738 Other assets and other liabilities, net 663 (3,150) Cash generated from operations 30,009 17,126 Income taxes paid, net (2,388) (1,740) Net cash from operating activities 27,621 15,386

Cash ﬂ ows from/(used in) investing activities Proceeds from sale of property, plant and equipment 879 124 Expenditures on property, plant and equipment (5,775) (7,689) Expenditures on other intangible assets (753) (293) Purchase of investments (77,267) (60,620) Proceeds from sale of investments 74,786 56,278 Loans and advances repaid by subsidiaries 1,800 63 Interest income received 821 338 Net cash used in investing activities (5,509) (11,799)

Cash fl ows from/(used in) fi nancing activities Proceeds from issuance of equity shares -* 1 Proceeds from/(repayment of) short-term loans and borrowings, net (Refer note 2.8 (d)) (17,049) 1,654 Proceeds from/(repayment of) long-term loans and borrowings, net (Refer note 2.8 (d)) - (1) Dividends paid (including corporate dividend tax) (4,002) (3,992) Purchases of treasury shares (535) - Interest paid (645) (706) Net cash used in fi nancing activities (22,231) (3,044)

Net increase/(decrease) in cash and cash equivalents (119) 543 Eff ect of exchange rate changes on cash and cash equivalents 44 (3) Cash and cash equivalents at the beginning of the year (Refer note 2.4 E) 1,207 667 Cash and cash equivalents at the end of the year (Refer note 2.4 E) 1,132 1,207 * Rounded off to millions. The accompanying notes are an integral part of the ﬁ nancial statements.

116 Company Overview Statutory Reports Financial Statements Annual Report 2018-19

Standalone NOTES TO FINANCIAL STATEMENTS

(All amounts in Indian Rupees millions, except share data and where otherwise stated) NOTE 1 DESCRIPTION OF THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES 1.1 Description of the Company Dr. Reddy’s Laboratories Limited (“Dr. Reddy’s” or “the Company”) is a leading India-based pharmaceutical company headquartered and having its registered offi ce in Hyderabad, Telangana, India. Through its three businesses - Pharmaceutical Services and Active Ingredients, Global Generics and Proprietary Products – the Company off ers a portfolio of products and services, including Active Pharmaceutical Ingredients (“APIs”), Custom Pharmaceutical Services (“CPS”), generics, biosimilars and diff erentiated formulations. The Company’s principal research and development facilities are located in the states of Telangana and Andhra Pradesh in India; its principal manufacturing facilities are located in the states of Telangana, Andhra Pradesh and Himachal Pradesh in India; and its principal markets are in India, Russia, the United States, the United Kingdom and Germany. The Company’s shares trade on the Bombay Stock Exchange and the National Stock Exchange in India and also on the New York Stock Exchange in the United States. 1.2 Basis of preparation of fi nancial statements a) Statement of compliance The fi nancial statements of the Company as at and for the year ended 31 March 2019 have been prepared and presented in accordance with the Indian Accounting Standards (“Ind AS”) notifi ed under the Companies (Indian Accounting Standards) Rules, 2015 and as amended from time to time. These fi nancial statements have been prepared by the Company as a going concern on the basis of relevant Ind AS that are eff ective or elected for early adoption at the Company’s annual reporting date, 31 March 2019. These fi nancial statements were authorised for issuance by the Company’s Board of Directors on 17 May 2019. b) Basis of measurement These fi nancial statements have been prepared on the historical cost convention and on an accrual basis, except for the following material items in the balance sheet:

derivative ﬁ nancial instruments are measured at fair value;

ﬁ nancial assets are measured either at fair value or at amortised cost depending on the classiﬁ cation;

employee defi ned benefi t assets/(liability) are recognised as the net total of the fair value of plan assets, adjusted for actuarial gains/ (losses) and the present value of the defi ned benefi t obligation;

long-term borrowings, except obligations under ﬁ nance leases, are measured at amortised cost using the eff ective interest rate method;

assets held for sale are measured at fair value less costs to sell; and

share-based payments are measured at fair value; c) Functional and presentation currency These fi nancial statements are presented in Indian rupees, which is the functional currency of the Company. All fi nancial information presented in Indian rupees has been rounded to the nearest million. d) Use of estimates and judgements The preparation of fi nancial statements in conformity with Ind AS requires management to make judgements, estimates and assumptions that aff ect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may diff er from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimates are revised and in any future periods aff ected. In particular, information about signifi cant areas of estimation uncertainty and critical judgments in applying accounting policies that have the most signifi cant eff ect on the amounts recognised in the fi nancial statements is included in the following notes:

Note 1.2 (c) — Assessment of functional currency;

Note 1.3 (c) — Financial instruments;

Note 1.3 (d) — Business combinations;

Notes 1.3 (e) and 1.3 (f) — Useful lives of property, plant and equipment and intangible assets;

Note 1.3 (h) — Valuation of inventories;

Note 1.3 (i) — Measurement of recoverable amounts of cash-generating units;

Building a winning future 117 Dr. Reddy’s Laboratories Limited

NOTES TO FINANCIAL STATEMENTS

(All amounts in Indian Rupees millions, except share data and where otherwise stated)

Note 1.3 (j) — Assets and obligations relating to employee beneﬁ ts;

Note 1.3 (j) — Share-based payments;

Note 1.3 (k) — Provisions and other accruals;

Note 1.3 (l) —Measurement of transaction price in a revenue transaction (Sales returns, rebates and chargeback provisions);

Note 1.3 (n) — Evaluation of recoverability of deferred tax assets; and

Note 1.3 (k) — Contingencies e) Current and non-current classifi cation All assets and liabilities have been classifi ed as current or non-current as per the Company’s normal operating cycle and other criteria set out in the Schedule III to the Companies Act, 2013 and Ind AS 1, Presentation of Financial Statements. Assets: An asset is classifi ed as current when it satisfi es any of the following criteria: a) it is expected to be realised in, or is intended for sale or consumption in, the Company’s normal operating cycle; b) it is held primarily for the purpose of being traded; c) it is expected to be realised within twelve months after the reporting date; or d) it is cash or a cash equivalent unless it is restricted from being exchanged or used to settle a liability for at least twelve months after the reporting date. Liabilities: A liability is classifi ed as current when it satisfi es any of the following criteria: a) it is expected to be settled in the Company’s normal operating cycle; b) it is held primarily for the purpose of being traded; c) it is due to be settled within twelve months after the reporting date; or d) the Company does not have an unconditional right to defer settlement of the liability for at least twelve months after the reporting date. Terms of a liability that could, at the option of the counterparty, result in its settlement by the issue of equity instruments do not aff ect its classifi cation. Current assets and liabilities include the current portion of non-current assets and liabilities respectively. All other assets and liabilities are classifi ed as non-current. Deferred tax assets and liabilities are always disclosed as non-current. 1.3 Signifi cant accounting policies a) New Standards adopted by the Company Ind AS 115, Revenue from Contracts with Customers In March 2018, the Ministry of Corporate Aff airs (“MCA”) has notifi ed Ind AS 115, Revenue from Contracts with Customers, which is eff ective for accounting periods beginning on or after 1 April 2018. This comprehensive new standard supersedes Ind AS 18, Revenue, Ind AS 11, Construction contracts and related interpretations. The new standard amends revenue recognition requirements and establishes principles for reporting information about the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. The Company adopted Ind AS 115 eff ective as of 1 April 2018.The impacts of the adoption of the new standard are summarised below: Revenue The Company’s revenue is derived from sale of goods, service income and income from licensing arrangements, each as more particularly described below. Most of such revenue (approximately 98.5%) is generated from the sale of goods. Sale of goods Revenue from sale of goods consists of the sale of generic and branded products and the sale of active pharmaceutical ingredients and intermediates. Revenue from sale of goods is recognised where control is transferred to the Company’s customers at the time of shipment to or receipt of goods by the customers. There was no change in the point of recognition of revenue upon adoption of Ind AS 115.

118 Company Overview Statutory Reports Financial Statements Annual Report 2018-19

Standalone NOTES TO FINANCIAL STATEMENTS

(All amounts in Indian Rupees millions, except share data and where otherwise stated)

Service income Service income, which primarily relates to revenue from contract research, is recognised as and when the underlying services are performed. There was no change in the point of recognition of revenue upon adoption of Ind AS 115. Upfront non-refundable payments received under these arrangements continue to be deferred and are recognised over the expected period that related services are to be performed. License fees License fees primarily consist of income from the out-licensing of intellectual property, and other licensing and supply arrangements with various parties. Revenue from license fees is recognised when control transfers to the third party and the Company’s performance obligations are satisfi ed. The adoption of Ind AS 115 did not signifi cantly change the timing or amount of revenue recognised by the Company from these arrangements, nor did it change accounting for these royalty arrangements, as the standard’s royalty exception is applied for intellectual property licenses. Upfront non-refundable payments received under these arrangements continue to be deferred and are recognised over the expected period that related services are to be performed. Profi t share revenues and milestone payments Revenues from sale of goods also include revenues from profi t sharing arrangements with business partners for sales of the Company’s products in certain markets. Furthermore, the Company receives milestone payments related to out-licensing of the intellectual property. Under Ind AS 115, the profi t share amount is recognised only to the extent that it is highly probable that a signifi cant reversal in the amount of profi t share will not occur when the uncertainty associated with the profi t share is subsequently resolved. The adoption of Ind AS 115 did not signifi cantly change the timing or amount of revenue recognised by the Company under these arrangements. The Company applied the modifi ed retrospective method upon adoption of Ind AS 115 on 1 April 2018. This method requires the recognition of the cumulative eff ect of initially applying Ind AS 115 to retained earnings and not to restate prior years. Overall, the application of this standard did not have a material impact on the Company’s revenue streams from the sale of goods, service income, license fees, profi t share revenues and milestone payments, and associated rebates and sales returns provisions. b) Foreign currency Foreign currency transactions Transactions in foreign currencies are translated to the respective functional currencies of entities within the Company at exchange rates at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies at the reporting date are translated into the functional currency at the exchange rate at that date. Non-monetary items that are measured based on historical cost in a foreign currency are translated at the exchange rate at the date of the transaction. Non-monetary items that are measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was measured. Exchange diff erences arising on the settlement of monetary items or on translating monetary items at rates diff erent from those at which they were translated on initial recognition during the period or in previous fi nancial statements are recognised in the statement of profi t and loss in the period in which they arise. However, foreign currency diff erences arising from the translation of the following items are recognised in other comprehensive income (“OCI”):

certain debt instruments classiﬁ ed as measured at fair value through other comprehensive income;

certain equity instruments where the Company had made an irrevocable election to present in other comprehensive income subsequent changes in the fair value;

a ﬁ nancial liability designated as a hedge of the net investment in a foreign operation, to the extent that the hedge is eff ective; and

qualifying cash fl ow hedges, to the extent that the hedges are eff ective. When several exchange rates are available, the rate used is that at which the future cash fl ows represented by the transaction or balance could have been settled if those cash fl ows had occurred at the measurement date.

Building a winning future 119 Dr. Reddy’s Laboratories Limited

NOTES TO FINANCIAL STATEMENTS

(All amounts in Indian Rupees millions, except share data and where otherwise stated)

c) Financial instruments A fi nancial instrument is any contract that gives rise to a fi nancial asset of one entity and a fi nancial liability or equity instrument of another entity. Financial assets Initial recognition and measurement All fi nancial assets are recognised initially at fair value plus, in the case of fi nancial assets not recorded at fair value through profi t or loss, transaction costs that are attributable to the acquisition of the fi nancial asset. Purchases or sales of fi nancial assets that require delivery of assets within a time frame established by regulation or convention in the market place (regular way trades) are recognised on the trade date, i.e., the date that the Company commits to purchase or sell the asset. Trade receivables are recognised initially at the amount of consideration that is unconditional unless they contain signifi cant fi nancing components, in which case they are recognised at fair value. The Company’s trade receivables do not contain any signifi cant fi nancing component and hence are measured at the transaction price measured under Ind AS 115. Subsequent measurement For purposes of subsequent measurement, fi nancial assets are classifi ed in four categories:

Debt instruments at amortised cost;

Debt instruments at fair value through other comprehensive income (FVTOCI);

Debt instruments, derivatives and equity instruments at fair value through proﬁ t or loss (FVTPL); and

Equity instruments measured at fair value through other comprehensive income (FVTOCI). Debt instruments at amortised cost A ‘debt instrument’ is measured at the amortised cost if both the following conditions are met: a) The asset is held within a business model whose objective is to hold assets for collecting contractual cash fl ows; and b) Contractual terms of the asset give rise on specifi ed dates to cash fl ows that are solely payments of principal and interest (SPPI) on the principal amount outstanding. After initial measurement, such fi nancial assets are subsequently measured at amortised cost using the eff ective interest rate method. Amortised cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the eff ective interest rate. The eff ective interest rate amortisation is included in other income in the statement of profi t and loss. The losses arising from impairment are recognised in the statement of profi t and loss. This category generally applies to trade and other receivables. Debt instrument at FVTOCI A ‘debt instrument’ is classifi ed as at the FVTOCI if both of the following criteria are met: a) The objective of the business model is achieved both by collecting contractual cash fl ows and selling the fi nancial assets; and b) The asset’s contractual cash fl ows represent SPPI. Debt instruments included within the FVTOCI category are measured initially as well as at each reporting date at fair value. Fair value movements are recognised in the other comprehensive income (OCI). However, the Company recognises interest income, impairment losses & reversals and foreign exchange gain or loss in the statement of profi t and loss. On derecognition of the asset, cumulative gain or loss previously recognised in OCI is reclassifi ed to the statement of profi t and loss. Interest earned while holding FVTOCI debt instrument is reported as interest income using the eff ective interest rate method. Debt instrument at FVTPL FVTPL is a residual category for debt instruments. Any debt instrument, which does not meet the criteria for categorisation as at amortised cost or as FVTOCI, is classifi ed as at FVTPL. In addition, the Company may elect to designate a debt instrument, which otherwise meets amortised cost or FVTOCI criteria, as at FVTPL. However, such election is allowed only if doing so reduces or eliminates a measurement or recognition inconsistency (referred to as ‘accounting mismatch’). Debt instruments included within the FVTPL category are measured at fair value with all changes recognised in the statement of profi t and loss.

120 Company Overview Statutory Reports Financial Statements Annual Report 2018-19

Standalone NOTES TO FINANCIAL STATEMENTS

(All amounts in Indian Rupees millions, except share data and where otherwise stated)

Equity investments All equity investments within the scope of Ind AS 109 are measured at fair value. Equity instruments which are held for trading and contingent consideration recognised by an acquirer in a business combination to which Ind AS103 applies are classifi ed as at FVTPL. For all other equity instruments, the Company may make an irrevocable election to present in other comprehensive income subsequent changes in the fair value. The Company makes such election on an instrument by-instrument basis. The classifi cation is made on initial recognition and is irrevocable. If the Company decides to classify an equity instrument as at FVTOCI, then all fair value changes on the instrument, excluding dividends, are recognised in the OCI. There is no recycling of the amounts from OCI to the statement of profi t and loss, even on sale of investment. However, the Company may transfer the cumulative gain or loss within equity. Equity investments designated as FVTOCI are not subject to impairment assessment. Equity instruments included within the FVTPL category are measured at fair value with all changes recognised in the statement of profi t and loss. Investments in subsidiaries and joint venture Investments in subsidiaries and joint venture are carried at cost less accumulated impairment losses, if any. Where an indication of impairment exists, the carrying amount of the investment is assessed and written down immediately to its recoverable amount. On disposal of investments in subsidiaries and joint venture, the diff erence between net disposal proceeds and the carrying amounts are recognised in the statement of profi t and loss. Upon fi rst-time adoption of Ind AS, the Company has elected to measure its investments in subsidiaries and joint ventures at the Previous GAAP carrying amount as its deemed cost on the date of transition to Ind AS i.e., 1 April 2015. Derecognition A fi nancial asset (or, where applicable, a part of a fi nancial asset or part of a group of similar fi nancial assets) is primarily derecognised (i.e. removed from the Company’s balance sheet) when:

The rights to receive cash ﬂ ows from the asset have expired; or

Both (1) the Company has transferred its rights to receive cash fl ows from the asset or has assumed an obligation to pay the received cash fl ows in full without material delay to a third party under a “pass-through” arrangement; and (2) either (a) the Company has transferred substantially all the risks and rewards of the asset, or (b) the Company has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset. When the Company has transferred its rights to receive cash fl ows from an asset or has entered into a pass-through arrangement, it evaluates if and to what extent it has retained the risks and rewards of ownership. When it has neither transferred nor retained substantially all of the risks and rewards of the asset, nor transferred control of the asset, the Company continues to recognise the transferred asset to the extent of the Company’s continuing involvement. In that case, the Company also recognises an associated liability. The transferred asset and the associated liability are measured on a basis that refl ects the rights and obligations that the Company has retained. Impairment of trade receivables and other fi nancial assets In accordance with Ind AS 109, the Company applies the expected credit loss (ECL) model for measurement and recognition of impairment loss on trade receivables or any contractual right to receive cash or another fi nancial asset. For this purpose, the Company follows a ‘simplifi ed approach’ for recognition of impairment loss allowance on the trade receivable balances. The application of this simplifi ed approach does not require the Company to track changes in credit risk. Rather, it recognises impairment loss allowance based on lifetime ECLs at each reporting date, right from its initial recognition. As a practical expedient, the Company uses a provision matrix to determine impairment loss allowance on portfolio of its trade receivables. The provision matrix is based on its historically observed default rates over the expected life of the trade receivables and is adjusted for forward-looking estimates. At every reporting date, the historical observed default rates are updated and changes in the forward-looking estimates are analysed. Financial liabilities Initial recognition and measurement Financial liabilities are classifi ed, at initial recognition, as fi nancial liabilities at fair value through profi t or loss, loans and borrowings, payables, or as derivatives designated as hedging instruments in an eff ective hedge, as appropriate. All fi nancial liabilities are recognised initially at fair value and, in the case of loans and borrowings and payables, net of directly attributable transaction costs.

Building a winning future 121 Dr. Reddy’s Laboratories Limited

NOTES TO FINANCIAL STATEMENTS

(All amounts in Indian Rupees millions, except share data and where otherwise stated)

The Company’s fi nancial liabilities include trade and other payables, loans and borrowings including bank overdrafts and derivative fi nancial instruments. Subsequent measurement The measurement of fi nancial liabilities depends on their classifi cation, as described below: Financial liabilities at fair value through profi t or loss Financial liabilities at fair value through profi t or loss include fi nancial liabilities held for trading and fi nancial liabilities designated upon initial recognition as at fair value through profi t or loss. Financial liabilities are classifi ed as held for trading if they are incurred for the purpose of repurchasing in the near term. This category also includes derivative fi nancial instruments entered into by the Company that are not designated as hedging instruments in hedge relationships as defi ned by Ind AS 109. Separated embedded derivatives are also classifi ed as held for trading unless they are designated as eff ective hedging instruments. Gains or losses on liabilities held for trading are recognised in the statement of profi t and loss. Financial liabilities designated upon initial recognition at fair value through profi t or loss are designated as such at the initial date of recognition, and only if the criteria in Ind AS 109 are satisfi ed. For liabilities designated as FVTPL, fair value gains/ losses attributable to changes in own credit risk are recognised in OCI. These gains/ losses are not subsequently transferred to the statement of profi t and loss. However, the Company may transfer the cumulative gain or loss within equity. All other changes in fair value of such liability are recognised in the statement of profi t and loss. The Company has not designated any fi nancial liability as fair value through profi t and loss. Loans and borrowings After initial recognition, interest-bearing loans and borrowings are subsequently measured at amortised cost using the eff ective interest rate method. Gains and losses are recognised in the statement of profi t and loss when the liabilities are derecognised as well as through the eff ective interest rate amortisation process. Amortised cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the eff ective interest rate. The eff ective interest rate amortisation is included as finance costs in the statement of profi t and loss. Derecognition A fi nancial liability is derecognised when the obligation under the liability is discharged or cancelled or expires. When an existing fi nancial liability is replaced by another from the same lender on substantially diff erent terms, or the terms of an existing liability are substantially modifi ed, such an exchange or modifi cation is treated as the derecognition of the original liability and the recognition of a new liability. The diff erence in the respective carrying amounts is recognised in the statement of profi t and loss. Derivative fi nancial instruments The Company is exposed to exchange rate risk which arises from its foreign exchange revenues and expenses, primarily in US dollars, UK pounds sterling, Russian roubles Brazilian reals, South African rands (“ZAR”), Romanian new leus (“RON”) and Euros, and foreign currency debt in US dollars, Russian roubles, Ukrainian hryvnias and Euros. The Company uses derivative fi nancial instruments such as foreign exchange forward contracts, option contracts and swap contracts to mitigate its risk of changes in foreign currency exchange rates. The Company also uses non-derivative fi nancial instruments as part of its foreign currency exposure risk mitigation strategy. Hedges of highly probable forecasted transactions The Company classifi es its derivative fi nancial instruments that hedge foreign currency risk associated with highly probable forecasted transactions as cash fl ow hedges and measures them at fair value. The eff ective portion of such cash fl ow hedges is recorded in the Company’s hedging reserve as a component of equity and re-classifi ed to the statement of profi t and loss as part of the hedged item in the period corresponding to the occurrence of the forecasted transactions. The ineff ective portion of such cash fl ow hedges is recorded in the statement of profi t and loss as fi nance costs immediately. The Company also designates certain non-derivative fi nancial liabilities, such as foreign currency borrowings from banks, as hedging instruments for hedge of foreign currency risk associated with highly probable forecasted transactions. Accordingly, the Company applies cash fl ow hedge accounting to such relationships. Remeasurement gain/ loss on such non-derivative fi nancial liabilities is recorded in the Company’s hedging reserve as a component of equity and reclassifi ed to the statement of profi t and loss as part of the hedged item in the period corresponding to the occurrence of the forecasted transactions. If the hedging instrument no longer meets the criteria for hedge accounting, expires or is sold, terminated or exercised, then hedge accounting is discontinued prospectively. The cumulative gain or loss previously recognised in other comprehensive income, remains there until the forecasted transaction occurs. If the forecasted transaction is no longer expected to occur, then the balance in other comprehensive income is recognised immediately in the statement of profi t and loss.

122 Company Overview Statutory Reports Financial Statements Annual Report 2018-19

Standalone NOTES TO FINANCIAL STATEMENTS

(All amounts in Indian Rupees millions, except share data and where otherwise stated)

Hedges of recognised assets and liabilities Changes in the fair value of derivative contracts that economically hedge monetary assets and liabilities in foreign currencies, and for which no hedge accounting is applied, are recognised in the statement of profi t and loss. The changes in fair value of such derivative contracts, as well as the foreign exchange gains and losses relating to the monetary items, are recognised in the statement of profi t and loss. If the hedged item is derecognised, the unamortised fair value is recognised immediately in the statement of profi t and loss. Hedges of changes in the interest rates Consistent with its risk management policy, the Company uses interest rate swaps to mitigate the risk of changes in interest rates. The Company does not use them for trading or speculative purposes. Cash and cash equivalents Cash and cash equivalents consist of cash on hand, demand deposits and short-term, highly liquid investments that are readily convertible into known amounts of cash and which are subject to insignifi cant risk of changes in value. For this purpose, “short-term” means investments having original maturities of three months or less from the date of investment. Bank overdrafts that are repayable on demand form an integral part of the Company’s cash management and are included as a component of cash and cash equivalents for the purpose of the statement of cash fl ows. d) Business combinations In accordance with the provisions of Ind AS 101, First time adoption of Indian Accounting Standards, the Company has elected to apply the accounting for business combinations prospectively from transition date i.e., 1 April 2015. As such, Indian GAAP balances relating to business combinations entered into before that date, including goodwill, have been carried forward. The Company uses the acquisition method of accounting to account for business combinations. The acquisition date is the date on which control is transferred to the acquirer. Judgement is applied in determining the acquisition date and determining whether control is transferred from one party to another. Control exists when the Company is exposed to, or has rights to variable returns from its involvement with the entity and has the ability to aff ect those returns through power over the entity. In assessing control, potential voting rights are considered only if the rights are substantive. The Company measures goodwill as of the applicable acquisition date at the fair value of the consideration transferred, including the recognised amount of any non-controlling interest in the acquiree, less the net recognised amount of the identifi able assets acquired and liabilities assumed. When the fair value of the net identifi able assets acquired and liabilities assumed exceeds the consideration transferred, a bargain purchase gain is recognised immediately in the OCI and accumulates the same in equity as capital reserve where there exists clear evidence of the underlying reasons for classifying the business combination as a bargain purchase else the gain is directly recognised in equity as capital reserve. Consideration transferred includes the fair values of the assets transferred, liabilities incurred by the Company to the previous owners of the acquiree, and equity interests issued by the Company. Consideration transferred also includes the fair value of any contingent consideration. Consideration transferred does not include amounts related to the settlement of pre-existing relationships. Any goodwill that arises on account of such business combination is tested annually for impairment. Any contingent consideration is measured at fair value at the date of acquisition. If an obligation to pay contingent consideration that meets the defi nition of a fi nancial instrument is classifi ed as equity, then it is not re-measured and the settlement is accounted for within equity. Otherwise, other contingent consideration is re-measured at fair value at each reporting date and subsequent changes in the fair value of the contingent consideration are recorded in the statement of profi t and loss. A contingent liability of the acquiree is assumed in a business combination only if such a liability represents a present obligation and arises from a past event, and its fair value can be measured reliably. e) Property, plant and equipment Recognition and measurement Items of property, plant and equipment are measured at cost less accumulated depreciation and accumulated impairment losses, if any. Cost includes expenditures that are directly attributable to the acquisition of the asset. The cost of self-constructed assets includes the cost of materials and other costs directly attributable to bringing the asset to a working condition for its intended use. Borrowing costs that are directly attributable to the construction or production of a qualifying asset are capitalised as part of the cost of that asset. When parts of an item of property, plant and equipment have diff erent useful lives, they are accounted for as separate items (major components) of property, plant and equipment. Gains and losses upon disposal of an item of property, plant and equipment are determined by comparing the proceeds from disposal with the carrying amount of property, plant and equipment and are recognised in the statement of profi t and loss.

Building a winning future 123 Dr. Reddy’s Laboratories Limited

NOTES TO FINANCIAL STATEMENTS

(All amounts in Indian Rupees millions, except share data and where otherwise stated)

The cost of replacing part of an item of property, plant and equipment is recognised in the carrying amount of the item if it is probable that the future economic benefi ts embodied within the part will fl ow to the Company and its cost can be measured reliably. The costs of repairs and maintenance are recognised in the statement of profi t and loss as incurred. Items of property, plant and equipment acquired through exchange of non-monetary assets are measured at fair value, unless the exchange transaction lacks commercial substance or the fair value of either the asset received or asset given up is not reliably measurable, in which case the asset exchanged is recorded at the carrying amount of the asset given up. Depreciation Depreciation is recognised in the statement of profi t and loss on a straight line basis over the estimated useful lives of property, plant and equipment. Leased assets are depreciated over the shorter of the lease term and their useful lives. Land is not depreciated. Leasehold improvements are depreciated over the period of the lease agreement or the useful life, whichever is shorter. Depreciation methods, useful lives and residual values are reviewed at each reporting date. The estimated useful lives are as follows: Particulars Years Buildings - Factory and administrative buildings 20 to 30 - Ancillary structures 3 to 10 Plant and machinery 5 to 10 Furniture, fi xtures and offi ce equipment 3 to 8 Vehicles 4 to 5 Schedule II to the Companies Act, 2013 (“Schedule”) prescribes the useful lives for various classes of tangible assets. For certain class of assets, based on the technical evaluation and assessment, the Company believes that the useful lives adopted by it best represent the period over which an asset is expected to be available for use. Accordingly, for these assets, the useful lives estimated by the Company are diff erent from those prescribed in the Schedule. Software for internal use, which is primarily acquired from third-party vendors and which is an integral part of a tangible asset, including consultancy charges for implementing the software, is capitalised as part of the related tangible asset. Subsequent costs associated with maintaining such software are recognised as expense as incurred. The capitalised costs are amortised over the estimated useful life of the software or the remaining useful life of the tangible fi xed asset, whichever is lower. Advances paid towards the acquisition of property, plant and equipment outstanding at each reporting date and the cost of property, plant and equipment not ready to use before such date are disclosed as such under other non-current assets. Assets not ready for use are not depreciated but are tested for impairment. f) Goodwill and other intangible assets Recognition and measurement Goodwill represents the excess of consideration transferred, together with the amount of non-controlling interest in the acquiree, over the fair value of the Company’s share of identifi able net assets acquired. Goodwill Goodwill is measured at cost less accumulated impairment losses. In respect of equity accounted investees, the carrying amount of goodwill is included in the carrying amount of the investment, and any impairment loss on such an investment is not allocated to any asset, including goodwill, that forms part of the carrying value of the equity accounted investee. Other intangible assets that are acquired by the Company and that have fi nite useful lives are measured at Other intangible assets cost less accumulated amortisation and accumulated impairment losses. Expenditures on research activities undertaken with the prospect of gaining new scientifi c or technical knowledge and understanding are recognised in the statement of profi t and loss when incurred. Development activities involve a plan or design for the production of new or substantially improved products and processes. Development expenditures are capitalised only if development costs can be measured reliably; the product or process is technically and commercially feasible; Research and development future economic benefi ts are probable; and the Company intends to, and has suffi cient resources to complete development and to use or sell the asset. The expenditures to be capitalised include the cost of materials and other costs directly attributable to preparing the asset for its intended use. Other development expenditures are recognised in the statement of profi t and loss as incurred. As of 31 March 2019, none of the development expenditure amounts has met the aforesaid recognition criteria.

124 Company Overview Statutory Reports Financial Statements Annual Report 2018-19

Standalone NOTES TO FINANCIAL STATEMENTS

(All amounts in Indian Rupees millions, except share data and where otherwise stated)

Payments to third parties that generally take the form of up-front payments and milestones for in-licensed products, compounds and intellectual property are capitalised. The Company’s criteria for capitalisation Separate acquisition of of such assets are consistent with the guidance given in paragraph 25 of Indian Accounting Standard 38 intangible assets (“Ind AS 38”) (i.e., the receipt of economic beneﬁ ts embodied in each intangible asset separately purchased or licensed in the transaction is considered to be probable). Acquired research and development intangible assets that are under development are recognised as In- In-Process Research and Process Research and Development assets (“IPR&D”) or Intangible assets under development. IPR&D assets Development assets are not amortised, but evaluated for potential impairment on an annual basis or when there are indications (“IPR&D”) or Intangible that the carrying value may not be recoverable. Any impairment charge on such IPR&D assets is recorded in assets under development the statement of proﬁ t and loss.

Subsequent expenditure Subsequent expenditures are capitalised only when they increase the future economic benefi ts embodied Other intangible assets in the specifi c asset to which they relate. All other expenditures, including expenditures on internally generated goodwill and brands, is recognised in the statement of profi t and loss as incurred. Subsequent expenditure on an IPR&D project acquired separately or in a business combination and recognised as an intangible asset is: In-Process Research and recognised as an expense when incurred, if it is research expenditure; Development assets (“IPR&D”) or Intangible assets recognised as an expense when incurred, if it is development expenditure that does not satisfy the under development criteria for recognition as an intangible asset in paragraph 57 of Ind AS 38; and added to the carrying amount of the acquired in-process research or development project, if it is development expenditure that satisfi es the recognition criteria in paragraph 57 of Ind AS 38.

Amortisation Amortisation is recognised in the statement of profi t and loss on a straight-line basis over the estimated useful lives of intangible assets. Intangible assets that are not available for use are amortised from the date they are available for use. The estimated useful lives are as follows: Particulars Years Product related intangibles 3 to 15 Customer related intangibles 2 to 5 Other intangibles 3 to 5 The amortisation period and the amortisation method for intangible assets with a fi nite useful life are reviewed at each reporting date. Goodwill, intangible assets relating to products in development, other intangible assets not available for use and intangible assets having indefi nite useful life are subject to impairment testing at each reporting date. All other intangible assets are tested for impairment when there are indications that the carrying value may not be recoverable. All impairment losses are recognised immediately in the statement of profi t and loss. De-recognition of intangible assets Intangible assets are de-recognised either on their disposal or where no future economic benefi ts are expected from their use. Losses arising on such de-recognition are recorded in the statement of profi t and loss, and are measured as the diff erence between the net disposal proceeds, if any, and the carrying amount of respective intangible assets as at the date of de-recognition. g) Leases At the inception of each lease, the lease arrangement is classifi ed as either a fi nance lease or an operating lease, based on the substance of the lease arrangement. Finance leases A fi nance lease is recognised as an asset and a liability at the commencement of the lease, at the lower of the fair value of the asset and the present value of the minimum lease payments. Initial direct costs, if any, are also capitalised and, subsequent to initial recognition, the asset is accounted for in accordance with the accounting policy applicable to that asset. Minimum lease payments made under fi nance leases are apportioned between the fi nance expense and the reduction of the outstanding lease liability. The fi nance expense is allocated to each period during the lease term so as to produce a constant periodic rate of interest on the remaining balance of the liability. Operating leases Other leases are operating leases, and the leased assets are not recognised on the Company’s balance sheet. Payments made under operating leases are recognised in the statement of profi t and loss on a straight-line basis over the term of the lease. Operating lease incentives received from the landlord are recognised as a reduction of rental expense on a straight line basis over the lease term.

Building a winning future 125 Dr. Reddy’s Laboratories Limited

NOTES TO FINANCIAL STATEMENTS

(All amounts in Indian Rupees millions, except share data and where otherwise stated)

h) Inventories Inventories consist of raw materials, stores and spares, work-in-progress and fi nished goods and are measured at the lower of cost and net realisable value. The cost of all categories of inventories is based on the weighted average method. Cost includes expenditures incurred in acquiring the inventories, production or conversion costs and other costs incurred in bringing them to their existing location and condition. In the case of fi nished goods and work-in-progress, cost includes an appropriate share of overheads based on normal operating capacity. Stores and spares consists of packing materials, engineering spares (such as machinery spare parts) and consumables (such as lubricants, cotton waste and oils), which are used in operating machines or consumed as indirect materials in the manufacturing process. Net realisable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and selling expenses. The factors that the Company considers in determining the provision for slow moving, obsolete and other non-saleable inventory include estimated shelf life, planned product discontinuances, price changes, ageing of inventory and introduction of competitive new products, to the extent each of these factors impact the Company’s business and markets. The Company considers all these factors and adjusts the inventory provision to refl ect its actual experience on a periodic basis. i) Impairment of non-fi nancial assets The carrying amounts of the Company’s non-fi nancial assets, other than inventories and deferred tax assets are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, then the asset’s recoverable amount is estimated. For goodwill and intangible assets that have indefi nite lives or that are not yet available for use, an impairment test is performed each year at 31 March. The recoverable amount of an asset or cash-generating unit (as defi ned below) is the greater of its value in use and its fair value less costs to sell. In assessing value in use, the estimated future cash fl ows are discounted to their present value using a pre-tax discount rate that refl ects current market assessments of the time value of money and the risks specifi c to the asset or the cash-generating unit. For the purpose of impairment testing, assets are grouped together into the smallest group of assets that generate cash infl ows from continuing use that are largely independent of the cash infl ows of other assets or groups of assets (the “cash-generating unit”). The goodwill acquired in a business combination is, for the purpose of impairment testing, allocated to cash-generating units that are expected to benefi t from the synergies of the combination. An impairment loss is recognised in the statement of profi t and loss if the estimated recoverable amount of an asset or its cash-generating unit is lower than its carrying amount. Impairment losses recognised in respect of cash-generating units are allocated fi rst to reduce the carrying amount of any goodwill allocated to the units and then to reduce the carrying amount of the other assets in the unit on a pro-rata basis. An impairment loss in respect of goodwill is not reversed. In respect of other assets, impairment losses recognised in prior periods are assessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised. Goodwill that forms part of the carrying amount of an investment in an associate is not recognised separately, and therefore is not tested for impairment separately. Instead, the entire amount of the investment in an associate is tested for impairment as a single asset when there is objective evidence that the investment in an associate may be impaired. j) Employee benefi ts Short-term employee benefi ts Short-term employee benefi ts are expensed as the related service is provided. A liability is recognised for the amount expected to be paid if the Company has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee and the obligation can be estimated reliably. Defi ned contribution plans The Company’s contributions to defi ned contribution plans are charged to the statement of profi t and loss as and when the services are received from the employees. Defi ned benefi t plans The liability in respect of defi ned benefi t plans and other post-employment benefi ts is calculated using the projected unit credit method consistent with the advice of qualifi ed actuaries. The present value of the defi ned benefi t obligation is determined by discounting the estimated future cash outfl ows using interest rates of high-quality corporate bonds that are denominated in the currency in which the benefi ts will be paid, and that have terms to maturity approximating to the terms of the related defi ned benefi t obligation.

126 Company Overview Statutory Reports Financial Statements Annual Report 2018-19

Standalone NOTES TO FINANCIAL STATEMENTS

(All amounts in Indian Rupees millions, except share data and where otherwise stated)

In countries where there is no deep market in such bonds, the market interest rates on government bonds are used. The current service cost of the defi ned benefi t plan, recognised in the statement of profi t and loss in employee benefi t expense, refl ects the increase in the defi ned benefi t obligation resulting from employee service in the current year, benefi t changes, curtailments and settlements. Past service costs are recognised immediately in the statement of profi t and loss. The net interest cost is calculated by applying the discount rate to the net balance of the defi ned benefi t obligation and the fair value of plan assets. This cost is included in employee benefi t expense in the statement of profi t and loss. Actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions are recognized in OCI in the period in which they arise. When the benefi ts under a plan are changed or when a plan is curtailed, the resulting change in benefi t that relates to past service or the gain or loss on curtailment is recognised immediately in the statement of profi t and loss. The Company recognises gains or losses on the settlement of a defi ned benefi t plan obligation when the settlement occurs. Termination benefi ts Termination benefi ts are recognised as an expense in the statement of profi t and loss when the Company is demonstrably committed, without realistic possibility of withdrawal, to a formal detailed plan to either terminate employment before the normal retirement date, or to provide termination benefi ts as a result of an off er made to encourage voluntary redundancy. Termination benefi ts for voluntary redundancies are recognised as an expense in the statement of profi t and loss if the Company has made an off er encouraging voluntary redundancy, it is probable that the off er will be accepted, and the number of acceptances can be estimated reliably. Other long-term employee benefi ts The Company’s net obligation in respect of other long-term employee benefi ts is the amount of future benefi t that employees have earned in return for their service in the current and previous periods. That benefi t is discounted to determine its present value. Re-measurements are recognised in the statement of profi t and loss in the period in which they arise. Compensated absences The Company’s current policies permit certain categories of its employees to accumulate and carry forward a portion of their unutilised compensated absences and utilise them in future periods or receive cash in lieu thereof in accordance with the terms of such policies. The Company measures the expected cost of accumulating compensated absences as the additional amount that the Company incurs as a result of the unused entitlement that has accumulated at the reporting date. Such measurement is based on actuarial valuation as at the reporting date carried out by a qualifi ed actuary. Equity settled share-based payment transactions The grant date fair value of options granted to employees is recognised as an employee expense, in the statement of profi t and loss, with a corresponding increase in equity, over the period that the employees become unconditionally entitled to the options. The amount recognised as an expense is adjusted to refl ect the number of awards for which the related service and performance conditions are expected to be met, such that the amount ultimately recognised is based on the number of awards that meet the related service and performance conditions at the vesting date. The expense is recorded for each separately vesting portion of the award as if the award was, in substance, multiple awards. The increase in equity recognised in connection with share-based payment transaction is presented as a separate component in equity under “share-based payment reserve”. The amount recognised as an expense is adjusted to refl ect the actual number of stock options that vest. Cash settled share-based payment transactions The fair value of the amount payable to employees in respect of share-based payment transactions which are settled in cash is recognised as an expense, with a corresponding increase in liabilities, over the period during which the employees become unconditionally entitled to payment. The liability is re-measured at each reporting date and at the settlement date based on the fair value of the share-based payment transaction. Any changes in the liability are recognised in the statement of profi t and loss. k) Provisions A provision is recognised in the statement of profi t and loss if, as a result of a past event, the Company has a present legal or constructive obligation that can be estimated reliably, and it is probable that an outfl ow of economic benefi ts will be required to settle the obligation. If the eff ect of the time value of money is material, provisions are determined by discounting the expected future cash fl ows at a pre-tax rate that refl ects current market assessments of the time value of money and the risks specifi c to the liability. Where discounting is used, the increase in the provision due to the passage of time is recognised as a fi nance cost. Restructuring A provision for restructuring is recognised in the statement of profi t and loss when the Company has approved a detailed and formal restructuring plan, and the restructuring either has commenced or has been announced publicly. Future operating costs are not provided.

Building a winning future 127 Dr. Reddy’s Laboratories Limited

NOTES TO FINANCIAL STATEMENTS

(All amounts in Indian Rupees millions, except share data and where otherwise stated)

Onerous contracts A provision for onerous contracts is recognised in the statement of profi t and loss when the expected benefi ts to be derived by the Company from a contract are lower than the unavoidable cost of meeting its obligations under the contract. The provision is measured at the present value of the lower of the expected cost of terminating the contract and the expected net cost of continuing with the contract. Before a provision is established, the Company recognises any impairment loss on the assets associated with that contract. Reimbursement rights Expected reimbursements for expenditures required to settle a provision are recognised in the statement of profi t and loss only when receipt of such reimbursements is virtually certain. Such reimbursements are recognised as a separate asset in the balance sheet, with a corresponding credit to the specifi c expense for which the provision has been made. Contingent liabilities and contingent assets A disclosure for a contingent liability is made when there is a possible obligation or a present obligation that may, but probably will not, require an outfl ow of resources. Where there is a possible obligation or a present obligation in respect of which the likelihood of outfl ow of resources is remote, no provision or disclosure is made. Contingent assets are not recognised in the fi nancial statements. A contingent asset is disclosed where an infl ow of economic benefi ts is probable. Contingent assets are assessed continually and, if it is virtually certain that an infl ow of economic benefi ts will arise, the asset and related income are recognised in the period in which the change occurs. l) Revenue The Company’s revenue is derived from sales of goods, service income and income from licensing arrangements. Most of such revenue is generated from the sale of goods. Accounting policies relating to revenue for the periods after 31 March 2018 are as follows: Sale of goods Revenue is recognised when the control of the goods has been transferred to a third party. This is usually when the title passes to the customer, either upon shipment or upon receipt of goods by the customer. At that point, the customer has full discretion over the channel and price to sell the products, and there are no unfulfi lled obligations that could aff ect the customer’s acceptance of the product. Revenue from the sale of goods is measured at the transaction price which is the consideration received or receivable, net of returns, taxes and applicable trade discounts and allowances. Revenue includes shipping and handling costs billed to the customer. In arriving at the transaction price, the Company considers the terms of the contract with the customers and its customary business practices. The transaction price is the amount of consideration the Company is entitled to receive in exchange for transferring promised goods or services, excluding amounts collected on behalf of third parties. The amount of consideration varies because of estimated rebates, returns and chargebacks, which are considered to be key estimates. Any amount of variable consideration is recognised as revenue only to the extent that it is highly probable that a signifi cant reversal will not occur. The Company estimates the amount of variable consideration using the expected value method. Presented below are the points of recognition of revenue with respect to the Company’s sale of goods: Particulars Point of recognition of revenue Upon delivery of products to distributors by clearing and forwarding agents of the Company. Sales of generic products in India Control over the generic products is transferred by the Company when the goods are delivered to distributors from clearing and forwarding agents. Sales of active pharmaceutical Upon delivery of products to customers (generally formulation manufacturers), from the factories ingredients and intermediates in India of the Company. Upon delivery of the products to the customers unless the terms of the applicable contract provide Export sales and other sales outside for specifi c revenue generating activities to be completed, in which case revenue is recognised of India once all such activities are completed. Profi t share revenues The Company from time to time enters into marketing arrangements with certain business partners for the sale of its products in certain markets. Under such arrangements, the Company sells its products to the business partners at a non-refundable base purchase price agreed upon in the arrangement and is also entitled to a profi t share which is over and above the base purchase price. The profi t share is typically dependent on the business partner’s ultimate net sale proceeds or net profi ts, subject to any reductions or adjustments that are required by the terms of the arrangement. Such arrangements typically require the business partner to provide confi rmation of units sold and net sales or net profi t computations for the products covered under the arrangement.

128 Company Overview Statutory Reports Financial Statements Annual Report 2018-19

Standalone NOTES TO FINANCIAL STATEMENTS

(All amounts in Indian Rupees millions, except share data and where otherwise stated)

Revenue in an amount equal to the base purchase price is recognised in these transactions upon delivery of products to the business partners. An additional amount representing the profi t share component is recognised as revenue only to the extent that it is highly probable that a signifi cant reversal will not occur. At the end of each reporting period, the Company updates the estimated transaction price (including updating its assessment of whether an estimate of variable consideration is constrained) to represent faithfully the circumstances present at the end of the reporting period and the changes in circumstances during the reporting period. Out licensing arrangements, milestone payments and royalties Revenues include amounts derived from product out-licensing agreements. These arrangements typically consist of an initial up-front payment on inception of the license and subsequent payments dependent on achieving certain milestones in accordance with the terms prescribed in the agreement. In cases where the transaction has two or more components, the Company accounts for the delivered item (for example, the transfer of title to the intangible asset) as a separate unit of accounting and record revenue upon delivery of that component, provided that the Company can make a reasonable estimate of the fair value of the undelivered component. Otherwise, non-refundable up-front license fees received in connection with product out-licensing agreements are deferred and recognised over the period in which the Company has pending performance obligations. Milestone payments which are contingent on achieving certain clinical milestones are recognised as revenues either on achievement of such milestones, over the performance period depending on the terms of the contract. If milestone payments are creditable against future royalty payments, the milestones are deferred and released over the period in which the royalties are anticipated to be paid. Royalty income earned through a license is recognised when the underlying sales have occurred. Provision for chargeback, rebates and discounts Provisions for chargeback, rebates, discounts and Medicaid payments are estimated and provided for in the year of sales and recorded as reduction of revenue. A chargeback claim is a claim made by the wholesaler for the diff erence between the price at which the product is initially invoiced to the wholesaler and the net price at which it is agreed to be procured from the Company. Provisions for such chargebacks are accrued and estimated based on historical average chargeback rate actually claimed over a period of time, current contract prices with wholesalers/other customers and estimated inventory holding by the wholesaler. Shelf stock adjustments Shelf stock adjustments are credits issued to customers to refl ect decreases in the selling price of products sold by the Company, and are accrued when the prices of certain products decline as a result of increased competition upon the expiration of limited competition or exclusivity periods. These credits are customary in the pharmaceutical industry, and are intended to reduce the customer inventory cost to better refl ect the current market prices. The determination to grant a shelf stock adjustment to a customer is based on the terms of the applicable contract, which may or may not specifi cally limit the age of the stock on which a credit would be off ered. Sales Returns The Company accounts for sales returns accrual by recording refund liability concurrent with the recognition of revenue at the time of a product sale. This liability is based on the Company’s estimate of expected sales returns. The Company deals in various products and operates in various markets. Accordingly, the estimate of sales returns is determined primarily by the Company’s historical experience in the markets in which the Company operates. With respect to established products, the Company considers its historical experience of sales returns, levels of inventory in the distribution channel, estimated shelf life, product discontinuances, price changes of competitive products, and the introduction of competitive new products, to the extent each of these factors impact the Company’s business and markets. With respect to new products introduced by the Company, such products have historically been either extensions of an existing line of product where the Company has historical experience or in therapeutic categories where established products exist and are sold either by the Company or the Company’s competitors. At the time of recognising the refund liability the Company also recognises an asset (i.e., right to the returned goods), which is included in inventories for the products expected to be returned. The Company initially measures this asset at the former carrying amount of the inventory, less any expected costs to recover the goods, including any potential decreases in the value of the returned goods. Along with re-measuring the refund liability at the end of each reporting period, the Company updates the measurement of the asset recorded for any revisions to its expected level of returns, as well as any additional decreases in the value of the returned products. Services Revenue from services rendered, which primarily relate to contract research, is recognised in the statement of profi t and loss as the underlying services are performed. Upfront non-refundable payments received under these arrangements are deferred and recognised as revenue over the expected period over which the related services are expected to be performed.

Building a winning future 129 Dr. Reddy’s Laboratories Limited

NOTES TO FINANCIAL STATEMENTS

(All amounts in Indian Rupees millions, except share data and where otherwise stated)

License fees License fees primarily consist of income from the out-licensing of intellectual property, and other licensing and supply arrangements with various parties. Revenue from license fees is recognised when control transfers to the third party and the Company’s performance obligations are satisfi ed. Some of these arrangements include certain performance obligations by the Company. Revenue from such arrangements is recognised in the period in which the Company completes all its performance obligations. Accounting policies relating to revenue for period ending on or prior to 31 March 2018 are as follows: Sale of goods Revenue is recognised when the signifi cant risks and rewards of ownership have been transferred to the buyer, recovery of the consideration is probable, the associated costs and possible return of goods can be estimated reliably, there is no continuing management involvement with the goods and the amount of revenue can be measured reliably. Revenue from the sale of goods includes relevant taxes and is measured at the fair value of the consideration received or receivable, net of returns, sales tax and applicable trade discounts and allowances. Revenue includes shipping and handling costs billed to the customer. Revenue from sales of generic products in India is recognised upon delivery of products to distributors by clearing and forwarding agents of the Company. Signifi cant risks and rewards in respect of ownership of generic products are transferred by the Company when the goods are delivered to distributors from clearing and forwarding agents. Clearing and forwarding agents are generally compensated on a commission basis as a percentage of sales made by them. Revenue from sales of active pharmaceutical ingredients and intermediates in India is recognised on delivery of products to customers (generally formulation manufacturers), from the factories of the Company. Revenue from export sales and other sales outside of India is recognised when the signifi cant risks and rewards of ownership of products are transferred to the customers. Such transfer occurs upon delivery of the products to the customers unless the terms of the applicable contract provide for specifi c revenue generating activities to be completed, in which case revenue is recognised once all such activities are completed. Profi t share revenues The Company from time to time enters into marketing arrangements with certain business partners for the sale of its products in certain markets. Under such arrangements, the Company sells its products to the business partners at a non-refundable base purchase price agreed upon in the arrangement and is also entitled to a profi t share which is over and above the base purchase price. The profi t share is typically dependent on the business partner’s ultimate net sale proceeds or net profi ts, subject to any reductions or adjustments that are required by the terms of the arrangement. Such arrangements typically require the business partner to provide confi rmation of units sold and net sales or net profi t computations for the products covered under the arrangement. Revenue in an amount equal to the base purchase price is recognised in these transactions upon delivery of products to the business partners. An additional amount representing the profi t share component is recognised as revenue in the period which corresponds to the ultimate sales of the products made by business partners only when the collectability of the profi t share becomes probable and a reliable measurement of the profi t share is available. Otherwise, recognition is deferred to a subsequent period pending satisfaction of such collectability and measurability requirements. In measuring the amount of profi t share revenue to be recognised for each period, the Company uses all available information and evidence, including any confi rmations from the business partner of the profi t share amount owed to the Company, to the extent made available before the date the Company’s Board of Directors authorises the issuance of its fi nancial statements for the applicable period. Milestone payments and out licensing arrangements Revenues include amounts derived from product out-licensing agreements. These arrangements typically consist of an initial up-front payment on inception of the license and subsequent payments dependent on achieving certain milestones in accordance with the terms prescribed in the agreement. Non-refundable up-front license fees received in connection with product out-licensing agreements are deferred and recognised over the period in which the Company has continuing performance obligations. Milestone payments which are contingent on achieving certain clinical milestones are recognised as revenues either on achievement of such milestones, if the milestones are considered substantive, or over the period the Company has continuing performance obligations, if the milestones are not considered substantive. If milestone payments are creditable against future royalty payments, the milestones are deferred and released over the period in which the royalties are anticipated to be paid. Provision for chargeback, rebates and discounts Provisions for chargeback, rebates, discounts and Medicaid payments are estimated and provided for in the year of sales and recorded as reduction of revenue. A chargeback claim is a claim made by the wholesaler for the diff erence between the price at which the product is initially invoiced to the wholesaler and the net price at which it is agreed to be procured from the Company. Provisions for such chargebacks are accrued and estimated based on historical average chargeback rate actually claimed over a period of time, current contract prices with wholesalers/other customers and estimated inventory holding by the wholesaler.

130 Company Overview Statutory Reports Financial Statements Annual Report 2018-19

Standalone NOTES TO FINANCIAL STATEMENTS

(All amounts in Indian Rupees millions, except share data and where otherwise stated)

Shelf stock adjustments Shelf stock adjustments are credits issued to customers to refl ect decreases in the selling price of products sold by the Company, and are accrued when the prices of certain products decline as a result of increased competition upon the expiration of limited competition or exclusivity periods. These credits are customary in the pharmaceutical industry, and are intended to reduce the customer inventory cost to better refl ect the current market prices. The determination to grant a shelf stock adjustment to a customer is based on the terms of the applicable contract, which may or may not specifi cally limit the age of the stock on which a credit would be off ered. Sales Returns The Company accounts for sales returns accrual by recording an allowance for sales returns concurrently with the recognition of revenue at the time of a product sale. This allowance is based on the Company’s estimate of expected sales returns. The Company deals in various products and operates in various markets. Accordingly, the estimate of sales returns is determined primarily by the Company’s historical experience in the markets in which the Company operates. With respect to established products, the Company considers its historical experience of sales returns, levels of inventory in the distribution channel, estimated shelf life, product discontinuances, price changes of competitive products, and the introduction of competitive new products, to the extent each of these factors impact the Company’s business and markets. With respect to new products introduced by the Company, such products have historically been either extensions of an existing line of product where the Company has historical experience or in therapeutic categories where established products exist and are sold either by the Company or the Company’s competitors. Services Revenue from services rendered, which primarily relate to contract research, is recognised in the statement of profi t and loss as the underlying services are performed. Upfront non-refundable payments received under these arrangements are deferred and recognised as revenue over the expected period over which the related services are expected to be performed. Export entitlements Export entitlements from government authorities are recognised in the statement of profi t and loss as a reduction from “Cost of material consumed” when the right to receive credit as per the terms of the scheme is established in respect of the exports made by the Company, and where there is no signifi cant uncertainty regarding the ultimate collection of the relevant export proceeds. License fee The Company from time to time enters into certain dossier sales, licensing and supply arrangements with various parties. Income from licensing arrangements is generally recognised over the term of the contract. Some of these arrangements include certain performance obligations by the Company. Revenue from such arrangements is recognised in the period in which the Company completes all its performance obligations. Shipping and handling costs Shipping and handling costs incurred to transport products to customers, and internal transfer costs incurred to transport the products from the Company’s factories to its various points of sale, are included in selling and other expenses. m) Other income and fi nance cost Other income consists of interest income on funds invested, dividend income and gains on the disposal of assets. Interest income is recognised in the statement of profi t and loss as it accrues, using the eff ective interest method. Dividend income is recognised in the statement of profi t and loss on the date that the Company’s right to receive payment is established. The associated cash fl ows are classifi ed as investing activities in the statement of cash fl ows. Finance expenses consist of interest expense on loans and borrowings. Borrowing costs are recognised in the statement of profi t and loss using the eff ective interest method. The associated cash fl ows are classifi ed as fi nancing activities in the statement of cash fl ows. Foreign currency gains and losses are reported on a net basis within other income and / or selling and other expenses. These primarily include: exchange diff erences arising on the settlement or translation of monetary items; changes in the fair value of derivative contracts that economically hedge monetary assets and liabilities in foreign currencies and for which no hedge accounting is applied; and the ineff ective portion of cash flow hedges. n) Income tax Income tax expense consists of current and deferred tax. Income tax expense is recognised in the statement of profi t and loss except to the extent that it relates to items recognised directly in equity, in which case it is recognised in equity. Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the reporting date, and any adjustment to tax payable in respect of previous years.

Building a winning future 131 Dr. Reddy’s Laboratories Limited

NOTES TO FINANCIAL STATEMENTS

(All amounts in Indian Rupees millions, except share data and where otherwise stated)

Deferred tax is recognised using the balance sheet method, providing for temporary diff erences between the carrying amounts of assets and liabilities for ﬁ nancial reporting purposes and the amounts used for taxation purposes. Deferred tax is not recognised for the following temporary diff erences:

temporary diff erences on the initial recognition of assets or liabilities in a transaction that is not a business combination and that aff ects neither accounting nor taxable proﬁ t;

temporary diff erences relating to investments in subsidiaries and jointly controlled entities to the extent that it is probable that they will not reverse in the foreseeable future; and

taxable temporary diff erences arising upon the initial recognition of goodwill. Deferred tax is measured at the tax rates that are expected to be applied to the temporary diff erences when they reverse, based on the laws that have been enacted or substantively enacted by the reporting date. Deferred tax assets and liabilities are off set if there is a legally enforceable right to off set current tax liabilities and assets, and they relate to income taxes levied by the same tax authority on the same taxable entity, or on diff erent tax entities, but they intend to settle current tax liabilities and assets on a net basis or their tax assets and liabilities will be realised simultaneously. A deferred tax asset is recognised to the extent that it is probable that future taxable profi ts will be available against which the temporary diff erence can be utilised. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefi t will be realised. Unrecognised deferred tax assets are reassessed at each reporting date and are recognised to the extent that it has become probable that the future taxable profi ts will allow the deferred tax assets to be recovered. Any deferred tax asset or liability arising from deductible or taxable temporary diff erences in respect of unrealised inter-company profi t or loss on inventories held by the Company in diff erent tax jurisdictions is recognised using the tax rate of the jurisdiction in which such inventories are held. Dividend distribution tax arising out of payment of dividends to shareholders under the Indian Income tax regulations is not considered as tax expense for the Company and all such taxes are recognised in the statement of changes in equity as part of the associated dividend payment. Current and deferred tax is recognised in profi t or loss, except to the extent that it relates to items recognised in other comprehensive income or directly in equity. In this case, the tax is also recognised in other comprehensive income or directly in equity, respectively. o) Earnings per share The Company presents basic and diluted earnings per share (“EPS”) data for its ordinary shares. Basic EPS is calculated by dividing the profi t or loss attributable to ordinary shareholders of the Company by the weighted average number of ordinary shares outstanding during the period. Diluted EPS is determined by adjusting the profi t or loss attributable to ordinary shareholders and the weighted average number of ordinary shares outstanding for the eff ects of all dilutive potential ordinary shares, which includes all stock options granted to employees. p) Government grants The Company recognises government grants only when there is reasonable assurance that the conditions attached to them will be complied with, and the grants will be received. Government grants received in relation to assets are presented as a reduction to the carrying amount of the related asset. Grants related to income are deducted in reporting the related expense in the statement of profi t and loss. Export entitlements from government authorities are recognised in the statement of profi t and loss as a reduction from “Cost of materials consumed” when the right to receive credit as per the terms of the scheme is established in respect of the exports made by the Company, and where there is no signifi cant uncertainty regarding the ultimate collection of the relevant export proceeds. q) Treasury shares Own equity instruments that are reacquired (treasury shares) are recognised at cost and deducted from equity. No gain or loss is recognised in profi t or loss on the purchase, sale, issue or cancellation of the Company’s own equity instruments. Any diff erence between the carrying amount and the consideration, if reissued, is recognised in the securities premium. r) Recent accounting pronouncements Standards issued but not yet eff ective and not early adopted by the Company Ind AS 116, Leases On 30 March 2019, the Ministry of Corporate Aff airs (MCA) notifi ed Ind AS 116, Leases as part of the Companies (Indian Accounting Standards (Ind AS)) Amendment Rules, 2019. Ind AS 116 replaces existing standard on leases i.e. Ind AS 17, Leases with eff ect from accounting periods beginning on or after 1 April 2019.

132 Company Overview Statutory Reports Financial Statements Annual Report 2018-19

Standalone NOTES TO FINANCIAL STATEMENTS

(All amounts in Indian Rupees millions, except share data and where otherwise stated)

Upon adoption, a portion of the annual operating lease expense will be recognised as fi nance expense. Further, a portion of the annual lease payments recognised in the statement of cash fl ows as reduction of lease liability will be recognised as outfl ow from fi nancing activities, which are currently fully recognised as an outfl ow from operating activities. The undiscounted and non-cancellable operating lease commitments are ` 232 and ` 276 as at 31 March 2019 and 31 March 2018, respectively, as disclosed in note 2.26 provide an indicator of the impact of the implementation of Ind AS 116 on the fi nancial statements of the company. Accordingly, the Company believes that the adoption of Ind AS 116 will not have a material impact on it’s fi nancial statements. Appendix C, Uncertainty over Income Tax Treatments, to Ind AS 12, Income Taxes On 30 March 2019, the Ministry of Corporate Aff airs (MCA) made certain amendments to Ind AS 12, Income taxes by including Appendix C, Uncertainty over Income Tax Treatments. This appendix clarifi es how the recognition and measurement requirements of Ind AS 12 are applied where there is uncertainty over income tax treatments. Appendix C explains how to recognise and measure deferred and current income tax assets and liabilities where there is uncertainty over a tax treatment. An uncertain tax treatment is any tax treatment applied by an entity where there is uncertainty over whether that treatment will be accepted by the applicable tax authority. For example, a decision to claim a deduction for a specifi c expense or not to include a specifi c item of income in a tax return is an uncertain tax treatment if its acceptability is uncertain under applicable tax law. The amendment provides specifi c guidance in several areas where previously Ind AS 12 was silent. Appendix C applies to all aspects of income tax accounting where there is an uncertainty regarding the treatment of an item, including taxable profi t or loss, the tax bases of assets and liabilities, tax losses and credits and tax rates. The amendment is eff ective for annual reporting periods beginning on or after 1 April 2019. An entity can, on initial application, elect to apply this amendment either:

retrospectively applying Ind AS 8, Accounting Policies, Changes in Accounting Estimates and Errors, if possible without the use of hindsight; or

Building a winning future 133 Dr. Reddy’s Laboratories Limited

NOTES TO FINANCIAL STATEMENTS

(All amounts in Indian Rupees millions, except share data and where otherwise stated)

d) Investments in equity and debt securities and units of mutual funds The fair value of marketable equity and debt securities is determined by reference to their quoted market price at the reporting date. For debt securities where quoted market prices are not available, fair value is determined using pricing techniques such as discounted cash fl ow analysis. In respect of investments in mutual funds, the fair values represent net asset value as stated by the issuers of these mutual fund units in the published statements. Net asset values represent the price at which the issuer will issue further units in the mutual fund and the price at which issuers will redeem such units from the investors. Accordingly, such net asset values are analogous to fair market value with respect to these investments, as transactions of these mutual funds are carried out at such prices between investors and the issuers of these units of mutual funds. e) Derivatives The fair value of foreign exchange forward contracts is estimated by discounting the diff erence between the contractual forward price and the current forward price for the residual maturity of the contract using a risk-free interest rate (based on government bonds). The fair value of foreign currency option and swap contracts and interest rate swap contracts is determined based on the appropriate valuation techniques, considering the terms of the contract. f) Non-derivative fi nancial liabilities Fair value, which is determined for disclosure purposes, is calculated based on the present value of future principal and interest cash fl ows, discounted at the market rate of interest at the reporting date. For fi nance leases the market rate of interest is determined by reference to similar lease agreements. In respect of the Company’s borrowings that have fl oating rates of interest, their fair value approximates carrying value. g) Share-based payment transactions The fair value of employee stock options is measured using the Black-Scholes-Merton valuation model. Measurement inputs include share price on grant date, exercise price of the instrument, expected volatility (based on weighted average historical volatility), expected life of the instrument (based on historical experience), expected dividends, and the risk free interest rate (based on government bo nds). NOTE 2 NOTES TO FINANCIAL STATEMENTS 2.1 Property, plant and equipment Furniture, fi xtures Plant and Vehicles Particulars Land Buildings and offi ce Total machinery equipment Owned Leasehold Gross carrying value Balance as at 1 April 2017 1,353 16,384 53,178 3,834 122 24 74,895 Additions 324 899 4,798 359 10 - 6,390 Disposals (7) (75) (995) (96) (4) (24) (1,201) Balance as at 31 March 2018 1,670 17,208 56,981 4,097 128 - 80,084

Balance as at 1 April 2018 1,670 17,208 56,981 4,097 128 - 80,084 Additions 3 1,372 5,233 535 30 - 7,173 Disposals(1) (3) (147) (1,774) (250) (4) - (2,178) Balance as at 31 March 2019 1,670 18,433 60,440 4,382 154 - 85,079

Accumulated Depreciation Balance as at 1 April 2017 - 3,471 28,068 2,828 71 24 34,462 Depreciation for the year - 699 5,682 497 18 - 6,896 Disposals - (37) (912) (87) (4) (24) (1,064) Balance as at 31 March 2018 - 4,133 32,838 3,238 85 - 40,294

Balance as at 1 April 2018 - 4,133 32,838 3,238 85 - 40,294 Depreciation for the year - 770 5,726 498 23 - 7,017 Disposals(1) - (68) (1,421) (244) (3) - (1,736) Balance as at 31 March 2019 - 4,835 37,143 3,492 105 - 45,575

Net carrying value As at 31 March 2018 1,670 13,075 24,143 859 43 - 39,790 As at 31 March 2019 1,670 13,598 23,297 890 49 - 39,504

134 Company Overview Statutory Reports Financial Statements Annual Report 2018-19

Standalone NOTES TO FINANCIAL STATEMENTS

(All amounts in Indian Rupees millions, except share data and where otherwise stated)

2.1 Property, plant and equipment (continued) (1) During the year ended 31 March 2019, the Company sold one of its API manufacturing business units located in Jeedimetla, Hyderabad to Therapiva Private Limited. This sale was done by way of slump sale (as deﬁ ned under section 2(42C) of Indian Income Tax Act,1961) including all related property, plant and equipment, current assets, current liabilities, and transfer of employees. An amount of ` 423 representing the proﬁ t on sale of such business unit was included under the heading “other income”. As of 31 March 2019 and 31 March 2018, the Company was committed to spend ` 2,423 and ` 3,477, respectively, under agreements to purchase property, plant and equipment. This amount is net of capital advances paid in respect of such purchase commitments. During the years ended 31 March 2019 and 31 March 2018, the Company capitalised interest cost of ` 74 and ` 71, respectively, with respect to qualifying assets. The rate for capitalisation of interest cost for the years ended 31 March 2019 and 31 March 2018 was approximately 3.21% and 2.76% respectively. Depreciation for the year includes an amount of ` 634 (31 March 2018: ` 640) pertaining to assets used for research and development. During the year, the Company incurred ` 677 (31 March 2018: ` 419) towards capital expenditure for research and development. (Refer note 2.35) 2.2 Goodwill Goodwill arising upon business combinations is not amortised but tested for impairment at least annually or more frequently if there is any indication that the cash generating unit to which goodwill is allocated is impaired. As at As at Particulars 31 March 2019 31 March 2018 Gross carrying value Opening balance 323 323 Additions - - Disposals - - Closing balance 323 323

Impairment loss Opening balance - - Impairment loss - - Disposals - - Closing balance - - Net carrying value 323 323

For the purpose of impairment testing, goodwill is allocated to a cash generating unit, representing the lowest level within the Company at which goodwill is monitored for internal management purposes and which is not higher than the Company’s operating segment. The carrying amount of goodwill was allocated to the cash generating units as follows: As at As at Particulars 31 March 2019 31 March 2018 Global Generics-Branded Formulations 323 323 The recoverable amounts of the above cash generating units have been assessed using a value-in-use model. Value-in-use is generally calculated as the net present value of the projected post-tax cash fl ows plus a terminal value of the cash generating unit to which the goodwill is allocated. Initially, a post-tax discount rate is applied to calculate the net present value of the post-tax cash fl ows. Key assumptions upon which the Company has based its determinations of value-in-use include: a) Estimated cash fl ows for fi ve years, based on management’s projections. b) A terminal value arrived at by extrapolating the last forecasted year cash fl ows to perpetuity, using a constant long-term growth rate of 0%. This long-term growth rate takes into consideration external macroeconomic sources of data. Such long-term growth rate considered does not exceed that of the relevant business and industry sector. c) The after tax discount rates used are based on the Company’s weighted average cost of capital. d) The after tax discount rates used range from 6.97% to 13.74% for various cash generating units. The pre-tax discount rates range from 7.56% to 16.63%. The Company believes that any reasonably possible change in the key assumptions on which a recoverable amount is based would not cause the aggregate carrying amount to exceed the aggregate recoverable amount of the cash-generating unit.

Building a winning future 135 Dr. Reddy’s Laboratories Limited

NOTES TO FINANCIAL STATEMENTS

(All amounts in Indian Rupees millions, except share data and where otherwise stated)

2.3 Other intangible assets Product related Customer related Particulars Others Total intangibles intangibles Gross carrying value Balance as at 1 April 2017 10,442 243 851 11,536 Additions 216 - 77 293 Disposals/De-recognitions - - - - Balance as at 31 March 2018 10,658 243 928 11,829

Balance as at 1 April 2018 10,658 243 928 11,829 Additions 226 - 527 753 Disposals/De-recognitions - (243) - (243) Balance as at 31 March 2019 10,884 - 1,455 12,339

Amortisation/impairment loss Balance as at 1 April 2017 3,258 243 370 3,871 Amortisation for the year 641 - 204 845 Impairment loss(1) 53 - - 53 Disposals/De-recognitions - - - - Balance as at 31 March 2018 3,952 243 574 4,769

Balance as at 1 April 2018 3,952 243 574 4,769 Amortisation for the year 543 - 246 789 Disposals/De-recognitions - (243) - (243) Impairment loss(1) 24 - - 24 Balance as at 31 March 2019 4,519 - 820 5,339

Net carrying value As at 31 March 2018 6,706 - 354 7,060 As at 31 March 2019 6,365 - 635 7,000 (1) As a result of the Company’s decision to discontinue a few products pertaining to its Global Generics segment, product related intangibles of ` 24 and ` 53 was recorded as impairment loss for the years ended 31 March 2019 and 31 March 2018, respectively, under “selling and other expenses” in the statement of proﬁ t and loss.

Amortisation for the year includes an amount of ` 44 (31 March 2018: ` 82) pertaining to assets used for research and development. During the year, the Company incurred ` 22 (31 March 2018: ` 36) towards capital expenditure for research and development. (Refer note 2.35) Details of signiﬁ cant intangible assets as at 31 March 2019: Particulars Acquired from Carrying Cost Select portfolio of dermatology, respiratory and pediatric assets UCB India Private Limited and affi liates 5,578 ANDAs Gland Pharma Limited 332

2.4 Financial assets 2.4 A Investments Investments consist of investments in units of equity securities, mutual funds, bonds, commercial paper, and term deposits with banks (i.e., certiﬁ cates of deposit having an original maturity period exceeding 3 months). As at As at Particulars 31 March 2019 31 March 2018 Investments at FVTOCI Quoted equity shares (fully paid-up) 120,000 (31 March 2018: 120,000) equity shares of ` 1/- each of State Bank of India 38 30 Total investments at FVTOCI (A) 38 30

136 Company Overview Statutory Reports Financial Statements Annual Report 2018-19

Standalone NOTES TO FINANCIAL STATEMENTS

(All amounts in Indian Rupees millions, except share data and where otherwise stated)

2.4 A Investments (continued) As at As at Particulars 31 March 2019 31 March 2018 Investments carried at cost Unquoted equity shares (fully paid-up) I. In subsidiary companies 105,640,410 (31 March 2018: 105,640,410) equity shares of CHF 1 each of Dr. Reddy’s Laboratories 13,515 13,515 SA, Switzerland 2,499,826 (31 March 2018: 2,499,826) equity shares of 10/- each of Idea2Enterprises India ` 1,537 1,537 Private Limited, India 90,544,104 (31 March 2018: 90,544,104) equity shares of 10/- each of Aurigene Discovery ` 974 974 Technologies Limited, India 36,249,230 (31 March 2018: 36,249,230) shares of Real $ 1 each of Dr. Reddy’s Farmaceutica Do 825 825 Brasil Ltda., Brazil 140,526,270 (31 March 2018: 140,526,270) Series “A” shares of Peso 1 each of Industrias Quimicas 709 709 Falcon de Mexico S.A. de C.V., Mexico 54,022,070 (31 March 2018: 54,022,070) equity shares of 10/- each of Dr. Reddy’s Bio-sciences ` 466 466 Limited, India 6,342,047 (31 March 2018: 1,131,646) equity shares of US$ 1 each of Reddy Antilles N.V., Netherlands 411 52 20,050,000 (31 March 2018: 20,050,000) equity shares of 1/- each of Regkinetics Services ` 201 201 Limited, India (formerly known as Dr. Reddy’s Pharma SEZ Limited, India) 123,000 (31 March 2018: 123,000) equity shares of 100/- each of Imperial Credit Private Limited, ` 31 31 India 134,513 (31 March 2018: 134,513) equity shares of 10/- each of Cheminor Investments Limited, ` 1 1 India 18,670 18,311 Less: Impairment Dr. Reddy’s Farmaceutica Do Brasil Ltda., Brazil (622) (622) Reddy Antilles N.V., Netherlands (411) (52) Total unquoted investments in equity shares of subsidiary companies, net (I) 17,637 17,637

II. In joint ventures Equity shares held in Kunshan Rotam Reddy Pharmaceutical Co. Limited, China(1) 429 429 8,580,000 (31 March 2018: 8,580,000) equity shares of 10/- each of DRES Energy Private ` 86 86 Limited, India Nil (31 March 2018: Nil) equity shares of ` 10/- each of DRSS Solar Power Private Limited, India(2) - - Total unquoted investments in equity shares of joint ventures, net (II) 515 515

Total investments carried at cost (I+II)(B) 18,152 18,152 (1) Shares held in Kunshan Rotam Reddy Pharmaceutical Co. Limited, China are not denominated in number of shares as per the laws of the country. (2) Liquidated during the year ended 31 March 2018. Investments at FVTPL I. Investment in unquoted equity shares 8,859 (31 March 2018: 8,859) equity shares of 100/- each of Jeedimetla Effl uent Treatment ` 1 1 Limited, India Ordinary shares of Biomed Russia Limited, Russia(1) - - 200,000 (31 March 2018: 200,000) equity shares of ` 10/- each of Altek Engineering Limited, India - - 24,000 (31 March 2018: 24,000) equity shares of 100/- each of Progressive Effl uent Treatment ` - - Limited, India 20,250 (31 March 2018: 20,250) equity shares of 10/- each of Shivalik Solid Waste Management ` - - Limited, India(2) Total unquoted trade investments in equity shares of other companies, net (I) 1 1 (1) Shares held in Biomed Russia Limited are not denominated in number of shares as per the laws of the country. (2) Rounded off to millions in the note above. II. Investment in unquoted mutual funds 14,900 13,317

Total investments at FVTPL (I + II) (C) 14,901 13,318

Building a winning future 137 Dr. Reddy’s Laboratories Limited

NOTES TO FINANCIAL STATEMENTS

(All amounts in Indian Rupees millions, except share data and where otherwise stated)

2.4 A Investments (continued) As at As at Particulars 31 March 2019 31 March 2018 Investments carried at amortised cost I. Investments in term deposits with banks (original maturity more than 3 months) 513 - II. Investments in bonds 5,272 4,633 III. Investments in commercial paper 459 232 Total investments carried at amortised cost (D) 6,244 4,865

Total investments (A+B+C+D) 39,335 36,365

Current 21,144 16,828 Non-current 18,191 19,537 39,335 36,365

Aggregate book value of quoted investments 38 30 Aggregate market value of quoted investments 38 30 Aggregate value of unquoted investments 40,330 37,009 Aggregate amount of impairment in the value of investments in the unquoted equity shares 1,033 674

2.4 B Trade receivables As at As at Particulars 31 March 2019 31 March 2018 Trade receivables from other parties 8,999 7,846 Receivables from subsidiaries (Refer note 2.22) 28,291 34,361 37,290 42,207 Details of security Considered good, unsecured 37,368 42,207 Credit impaired 389 3,943 37,757 46,150 Less: Allowance for credit losses (467) (3,943) 37,290 42,207

Current 37,177 42,038 Non-current(1) 113 169 37,290 42,207 (1) Represents amounts receivable pursuant to an out-licensing arrangement with a customer. As these amounts are not expected to be realised within twelve months from the end of the reporting date, they are disclosed as non-current. In accordance with Ind AS 109, the Company uses the expected credit loss (“ECL”) model for measurement and recognition of impairment loss on its trade receivables or any contractual right to receive cash or another ﬁ nancial asset that result from transactions that are within the scope of Ind AS 115. For this purpose, the Company uses a provision matrix to compute the expected credit loss amount for trade receivables. The provision matrix takes into account external and internal credit risk factors and historical data of credit losses from various customers. The details of changes in allowance for credit losses during the year ended 31 March 2019 and 31 March 2018 are as follows: For the year ended For the year ended Particulars 31 March 2019 31 March 2018 Balance at the beginning of the year 3,943 3,938 Provision made during the year, net of reversals 212 (12) Trade receivables written off during the year (3,933) (1) Eff ect of changes in the foreign exchange rates 245 18 Balance at the end of the year 467 3,943 The amount of credit loss as at 31 March 2018 includes provision for doubtful debts from Venezuela operations which has been written off during the year ended 31 March 2019.

138 Company Overview Statutory Reports Financial Statements Annual Report 2018-19

Standalone NOTES TO FINANCIAL STATEMENTS

(All amounts in Indian Rupees millions, except share data and where otherwise stated)

2.4 C Loans As at As at Particulars 31 March 2019 31 March 2018 Considered good, unsecured Loans and advances to wholly owned subsidiaries(1) 332 1,991 332 1,991 Considered doubtful, unsecured Loans and advances to wholly owned subsidiaries(1) - 338 Others - 8 332 2,337 Less: Allowance for doubtful loans and advances - (346) 332 1,991 (1) Loans and advances to wholly owned subsidiaries comprise: Maximum amount outstanding at any time Balance as at Particulars during the year ended 31 March 2019 31 March 2018 31 March 2019 31 March 2018 Wholly owned subsidiaries Industrias Quimicas Falcon de Mexico S.A. de C.V., Mexico - 1,669 1,798 1,725 Reddy Antilles N.V., Netherlands - 338 386 340 Dr. Reddy’s Farmaceutica Do Brasil Ltda., Brazil 320 311 365 397 DRL Impex Limited, India 11 11 11 11 Cheminor Investments Limited, India(2) - - - - Dr. Reddy’s Bio-sciences Limited, India(2) 1 - 1 - 332 2,329

(2) Rounded off to millions in the note above. Loans and advances to wholly owned subsidiaries are given for the purpose of working capital and other business requirements, settlement of which is neither planned nor likely to occur in the next twelve months. Loans given to DRL Impex Limited, India, Cheminor Investments Limited, India, and Dr. Reddy’s Bio-sciences Limited, India are interest free. Other loans carry the following rates of interest: Loan to Interest rate per annum Industrias Quimicas Falcon de Mexico S.A. de C.V., Mexico 9% Dr. Reddy’s Farmaceutica Do Brasil Ltda., Brazil 6% The details of changes in allowance for doubtful loans and advances during the year ended 31 March 2019 and 31 March 2018 are as follows: For the year ended For the year ended Particulars 31 March 2019 31 March 2018 Balance at the beginning of the year 346 412 Provision made/(reversed) during the year, net (359) (65) Loans and advances written off during the year (8) - Eff ect of changes in the foreign exchange rates 21 (1) Balance at the end of the year - 346 2.4 D Other ﬁ nancial assets As at As at Particulars 31 March 2019 31 March 2018 I. Non-current assets Considered good, unsecured Security deposits 447 437 447 437

II. Current assets Considered good, unsecured Claims receivable 91 223 Interest accrued but not due on investments 292 113 Receivables from subsidiary companies including step down subsidiaries Dr. Reddy’s Bio-sciences Limited, India 54 54 Dr. Reddy’s Laboratories SA, Switzerland 44 34 Others 25 27 Other assets 186 58

Considered doubtful, unsecured Receivables from subsidiary companies including step down subsidiaries Reddy Antilles N.V., Netherlands 2 19 694 528 Less: Allowance for doubtful advances (2) (19) 692 509

Building a winning future 139 Dr. Reddy’s Laboratories Limited

NOTES TO FINANCIAL STATEMENTS

(All amounts in Indian Rupees millions, except share data and where otherwise stated)

2.4 E Cash and cash equivalents As at As at Particulars 31 March 2019 31 March 2018 Balances with banks In current accounts 981 240 In EEFC accounts 26 1 In term deposits with banks (original maturities less than 3 months) - 879 Cash on hand 1 1 Other bank balances (restricted) In unclaimed dividend accounts 84 56 In unclaimed fractional share pay order accounts 1 1 In unclaimed debentures and debenture interest account 27 15 LC and Bank guarantee margin money 12 14 Cash and cash equivalents in the balance sheet 1,132 1,207

Less: Bank overdraft used for cash manangement purposes - - Cash and cash equivalents in the statement of cash ﬂ ow (including restricted cash) 1,132 1,207

2.5 Other assets As at As at Particulars 31 March 2019 31 March 2018 A. Non-current assets Considered good, unsecured Capital advances 72 86 Dues from joint ventures and other related parties 54 26 126 112 B. Current assets Considered good, unsecured Balances and receivables from statutory authorities(1) 3,857 6,098 Export beneﬁ ts receivable(2) 2,363 2,842 Advances to material suppliers 596 1,152 Prepaid expenses 482 383 Dues from other related parties 41 14 Others 1,357 729

Considered doubtful, unsecured Other advances 92 82 8,788 11,300 Less: Allowance for doubtful advances (92) (82) 8,696 11,218 (1) Balances and receivables from statutory authorities primarily consist of amounts receivable from the goods and service tax (“GST”), excise duty, value added tax and customs authorities of India and the unutilised GST input tax credits, excise duty, service tax and value added tax input credits (subsumed under GST input tax credits eff ective as of 1 July 2017) on purchases. These are regularly utilised to off set the GST liability (or, prior to 1 July 2017, liability for excise duty, value added tax, etc.) on goods produced by and services provided by the Company. Accordingly, these balances have been classifi ed as current assets. (2) Export benefi ts receivables primarily consist of amounts receivable from various government authorities of India towards incentives on export sales made by the Company. 2.6 Inventories As at As at Particulars 31 March 2019 31 March 2018 Raw materials (includes in transit ` 43; 31 March 2018: ` 14) 7,829 5,692 Work-in-progress 5,630 6,278 Finished goods 3,070 2,912 Stock-in-trade 1,357 1,527 Packing materials, stores and spares 2,270 2,159 20,156 18,568 During the year ended 31 March 2019, the Company recorded inventory write-down of ` 2,085 (31 March 2018: ` 1,965) in the statement of profi t and loss.

140 Company Overview Statutory Reports Financial Statements Annual Report 2018-19

Standalone NOTES TO FINANCIAL STATEMENTS

(All amounts in Indian Rupees millions, except share data and where otherwise stated)

2.7 Share capital As at As at Particulars 31 March 2019 31 March 2018 Authorised share capital 240,000,000 equity shares of ` 5/- each (31 March 2018: 240,000,000) 1,200 1,200

Issued equity capital 166,066,148 equity shares of ` 5/- each fully paid-up (31 March 2018: 165,911,107) 830 830

Subscribed and fully paid-up 166,065,948 equity shares of ` 5/- each fully paid-up (31 March 2018: 165,910,907) 830 830 Add: Forfeited share capital (e) - - 830 830 a) Reconciliation of the equity shares outstanding is set out below: For the year ended For the year ended Particulars 31 March 2019 31 March 2018 No. of shares Amount No. of shares Amount Opening number of equity shares/share capital 165,910,907 830 165,741,713 829 Add: Equity shares issued pursuant to employee stock option plan(1) 155,041 -* 169,194 1 Closing number of equity shares/share capital 166,065,948 830 165,910,907 830 Treasury shares(2) 217,976 535 -- * Rounded off to millions. (1) During the years ended 31 March 2019 and 31 March 2018, equity shares were issued as a result of the exercise of vested options granted to employees pursuant to the Dr. Reddy’s Employees Stock Option Plan, 2002 and Dr. Reddy’s Employees Stock Option Plan, 2007. All of the options exercised had an exercise price of ` 5, being equal to the par value of the underlying shares. Upon the exercise of such options, the amount of compensation cost (computed using the grant date fair value) previously recognised in the “share-based payment reserve” was transferred to “securities premium” in the statement of changes in equity. (2) Pursuant to the special resolution approved by the shareholders in the Annual General Meeting held on 27 July 2018, the Dr. Reddy’s Employees ESOS Trust (the“ESOS Trust”) was formed to support the Dr. Reddy’s Employees Stock Option Scheme, 2018 by acquiring, including through secondary market acquisitions, equity shares which are used for issuance to eligible employees upon exercise of stock options thereunder. As at 31 March 2019, the ESOS Trust purchased 217,976 shares from secondary market for an aggregate consideration of ` 535. Refer note 2.23 of these fi nancial statements for further details on the Dr. Reddy’s Employees Stock Option Scheme, 2018. b) Terms/rights attached to the equity shares The Company has only one class of equity shares having a par value of ` 5 per share. For all matters submitted to vote in a shareholders meeting of the Company, every holder of an equity share, as refl ected in the records of the Company as on the record date set for the shareholders meeting, shall have one vote in respect of each share held. Should the Company declare and pay any dividends, such dividends will be paid in Indian rupees to each holder of equity shares in proportion to the number of shares held to the total equity shares outstanding as on that date. Indian law on foreign exchange governs the remittance of dividends outside India. In the event of liquidation of the Company, all preferential amounts, if any, shall be discharged by the Company. The remaining assets of the Company shall be distributed to the holders of equity shares in proportion to the number of shares held to the total equity shares outstanding as on that date. Final dividends on equity shares (including dividend tax on distribution of such dividends) are recorded as a liability on the date of their approval by the shareholders and interim dividends are recorded as a liability on the date of declaration by the Company’s Board of Directors. The details of dividends paid by the Company are as follows: For the year ended For the year ended Particulars 31 March 2019 31 March 2018 Dividend per share (in absolute `) 20 20 Dividend distribution tax on the dividend paid 682 675 Dividend paid during the year 3,320 3,317 At the Company’s Board of Directors’ meeting held on 17 May 2019, the Board proposed a dividend of ` 20 per share and aggregating to ` 3,321, which is subject to the approval of the Company’s shareholders. Upon such approval, there will be an additional cash outfl ow of ` 683 for payment of dividend distribution tax thereon. c) Details of shareholders holding more than 5% shares in the Company As at 31 March 2019 As at 31 March 2018 Particulars % holding % holding No. of shares held No. of shares held in the class in the class Dr. Reddy’s Holdings Limited 41,325,300 24.88 41,083,500 24.76 First State Investments Management (UK) Limited, Commonwealth Bank of Australia, Stewart Investors and their 11,838,598 7.13 10,726,942 6.47 associates* * Does not include ADR holding.

Building a winning future 141 Dr. Reddy’s Laboratories Limited

NOTES TO FINANCIAL STATEMENTS

(All amounts in Indian Rupees millions, except share data and where otherwise stated)

2.7 Share capital (continued) d) 270,141 (31 March 2018: 320,544) stock options are outstanding and are to be issued by the Company upon exercise of the same in accordance with the terms of exercise under the “Dr. Reddy’s Employees Stock Option Plan, 2002”, 261,215 (31 March 2018: 107,308) stock options are outstanding and are to be issued by the Company upon exercise of the same in accordance with the terms of exercise under the “Dr. Reddy’s Employees ADR Stock Option Plan, 2007” and 229,600 (31 March 2018: Nil) stock options are outstanding and are to be issued by the Company upon exercise of the same in accordance with the terms of exercise under the “Dr. Reddy’s Employees Stock Option Scheme, 2018” (Refer note 2.23). e) Represents 200 equity shares of ` 5/- each, amount paid-up ` 500/- (rounded off to millions in the note above) forfeited due to non-payment of allotment money. f) During the year ended 31 March 2017, the Company bought-back and extinguished 5,077,504 equity shares under the buy-back of equity shares plan approved by the shareholders on 1 April 2016.

Aggregate number of shares bought-back during the period of ﬁ ve years immediately preceeding the reporting date: Year ended 31 March Particulars 2019 2018 2017 2016 2015 Ordinary shares of ` 5 each - - 5,077,504 - -

2.8 Financial liabilities 2.8 A Non-current borrowings As at As at Particulars 31 March 2019 31 March 2018 Unsecured Long-term loans from banks (a) 3,454 4,880 3,454 4,880

2.8 B Current borrowings As at As at Particulars 31 March 2019 31 March 2018 From Banks Unsecured Pre-shipment credit (b) 5,463 21,008 5,463 21,008 a) Represents External Commercial Borrowing, carrying interest rate of 1 Month LIBOR plus 82.7 bps and is repayable in three equal installments in the years ending 31 March 2020 and 31 March 2021. Current maturity of the same is shown under note 2.8 D of the ﬁ nancial statements.

As per the loan arrangement, the Company is required to comply with certain ﬁ nancial covenants and the Company was in compliance with such covenants as at 31 March 2019.

The aggregate maturities of long-term loans and borrowings, based on contractual maturities, as of 31 March 2019 and 31 March 2018 were as follows: As at As at Particulars 31 March 2019 31 March 2018 Maturing in the year ending 31 March(1) 2019 - - 2020 1,729 1,627 2021 3,458 3,261 2022 - - 2023 - - Thereafter - - 5,187 4,888

(1) Long-term debt obligations disclosed in the above table does not refl ect any netting of transaction costs amounting to ` 4 and ` 8 as at 31 March 2019 and 31 March 2018, respectively. b) Packing credit loans for the year ended 31 March 2019, comprised of US$ denominated loans carrying interest rates of 1 Month LIBOR plus 25 to 40 bps and are repayable within 6 to 12 months from the date of drawdown. Packing credit loans for the year ended 31 March 2018, comprised of US$ denominated loans carrying interest rates of 1 Month LIBOR minus 30 to plus 30 bps, RUB denominated loans carrying fi xed interest rate of 6.75%, and INR denominated loans carrying fi xed interest rate of 6.00% and are repayable within 6 to 12 months from the date of drawdown. c) The Company uncommitted lines of credit of ` 33,327 and ` 14,209 as of 31 March 2019 and 31 March 2018, respectively, from its banks for working capital requirements. The Company has the right to draw upon these lines of credit based on its working capital requirements.

142 Company Overview Statutory Reports Financial Statements Annual Report 2018-19

Standalone NOTES TO FINANCIAL STATEMENTS

(All amounts in Indian Rupees millions, except share data and where otherwise stated)

2.8 A & B Borrowings (continued) d) Reconciliation of liabilities arising from ﬁ nancing activities Non-current Current Particulars Total borrowings(1) borrowings Opening balance at the beginning of the year 4,880 21,008 25,888 Borrowings made during the year - 16,410 16,410 Borrowings repaid during the year - (33,459) (33,459) Eff ect of changes in foreign exchange rates 299 1,504 1,803 Others 4 - 4 Closing balance at the end of the year 5,183 5,463 10,646 (1) Does not include movement in bank overdraft and includes current portion. 2.8 C Trade payables As at As at Particulars 31 March 2019 31 March 2018 Trade payables to third parties Due to micro, small and medium enterprises(1) 77 93 Other parties 9,716 10,018 Trade payables to subsidiaries including step down subsidiaries (Refer note 2.22) 523 499 10,316 10,610

(1) (a) The principal amount remaining unpaid as at 31 March 2019 in respect of enterprises covered under the “Micro, Small and Medium Enterprises Development Act, 2006” (MSMED) is ` 77 (31 March 2018: ` 93). The interest amount computed based on the provisions under Section 16 of the MSMED is ` 0.00 (31 March 2018: ` 0.00) is remaining unpaid as of 31 March 2019. The interest amount of ` 0.00 that remained unpaid as at 31 March 2018 was paid fully during the current year. (b) The amount of interest due and payable for the period of delay in making payment (which have been paid but beyond the appointed day during the year) but without adding the interest speciﬁ ed under this Act is ` Nil (31 March 2018: Nil). (c) The list of undertakings covered under MSMED was determined by the Company on the basis of information available with the Company and has been relied upon by the auditors.

For details regarding the Company’s exposure to currency and liquidity risks, see note 2.29 of the fi nancial statements under “Liquidity risk”. 2.8 D Other fi nancial liabilities As at As at Particulars 31 March 2019 31 March 2018 Accrued expenses 5,058 5,262 Payable to subsidiary companies including step down subsidiaries (Refer note 2.22) 2,116 3,655 Current maturity of long term borrowings 1,729 - Due to capital creditors 778 2,266 Unclaimed dividends, debentures and debenture interest(1) 111 71 Trade and security deposits received 72 74 Interest accrued but not due on loans 2 8 Others 294 50 10,160 11,386 (1) Unclaimed amounts are transferred to Investor Protection and Education Fund after seven years from the due date. 2.9 Provisions As at As at Particulars 31 March 2019 31 March 2018 A. Non-current provisions Provision for employee benefi ts (Refer note 2.24) Compensated absences 498 484 Long service award benefi t plan 49 49 547 533 B. Current provisions Provision for employee benefi ts (Refer note 2.24) Compensated absences 323 313 Gratuity 26 49 Long service award benefi t plan 14 13 Other provisions (a) Refund liability 899 837 Others 585 522 1,847 1,734

Building a winning future 143 Dr. Reddy’s Laboratories Limited

NOTES TO FINANCIAL STATEMENTS

(All amounts in Indian Rupees millions, except share data and where otherwise stated)

2.9 Provisions (continued) a) Details of changes in other provisions during the year ended 31 March 2019 are as follows: Particulars Refund liability(1) Others(2) Balance as at beginning of the year 837 522 Provision made during the year, net of reversals 1,090 63 Provision used during the year (1,028) - Balance as at end of the year 899 585 (1) Refund liablity is accounted for by recording a provision based on the Company’s estimate of expected sales returns. See note 1.3(l) of these ﬁ nancial statements for the Company’s accounting policy on refund liabilty. (2) Primarily consists of provision recorded towards the potential liability arising out of a litigation relating to cardiovascular and anti-diabetic formulations. Refer note 2.30 of these ﬁ nancial statements under “Product and patent related matters - Matters relating to National Pharmaceutical Pricing Authority - Litigation relating to Cardiovascular and Anti-diabetic formulations” for further details. 2.10 Other liabilities As at As at Particulars 31 March 2019 31 March 2018 A. Non-current liabilities Deferred revenue 283 313 Others 2 - 285 313 B. Current liabilities Salary and bonus payable 1,907 1,420 Due to statutory authorities 433 655 Advance from customers 517 192 Deferred revenue 105 109 2,962 2,376

2.11 Revenue from contracts with customers and trade receivables Revenue from contracts with customers: For the year ended For the year ended Particulars 31 March 2019 31 March 2018 Sales(1) 104,667 92,468 Service income 503 198 License fees 559 360 105,729 93,026 Excise duty included in revenues(1) - 173 (1) Eff ective 1 July 2017, Goods and Services Tax (“GST”) was introduced in India. Following the principles of Ind AS 115, Revenue from Contracts with Customers, sales is disclosed net of GST. For periods prior to 1 July 2017, the excise duty amount was recorded as part of revenues. Accordingly, sales for the year ended 31 March 2019 are not comparable with those of the previous year presented. Analysis of revenues by segments: The following table shows the analysis of revenues (excluding other operating income) by segments: For the year ended For the year ended Particulars 31 March 2019 31 March 2018 Global Generics 85,853 75,975 Pharmaceutical Services and Active Ingredients 19,574 16,941 Propreitary Products 302 110 105,729 93,026 Details of refund liabilities: For the year ended For the year ended Particulars 31 March 2019 31 March 2018 Balance at the beginning of the year 837 879 Provision made during the year, net of reversals 1,090 1,105 Provision used during the year (1,028) (1,147) Balance at the end of the year 899 837

Current 899 837 Non-current - - 899 837 Details of contract asset: As mentioned in the accounting policies for refund liability, the Company recognises an asset i.e., right to the returned goods (included in inventories) for the products expected to be returned. The Company initially measures this asset at the former carrying amount of the inventory, less any expected costs to recover the goods, including any potential decreases in the value of the returned goods.

144 Company Overview Statutory Reports Financial Statements Annual Report 2018-19

Standalone NOTES TO FINANCIAL STATEMENTS

(All amounts in Indian Rupees millions, except share data and where otherwise stated)

2.11 Revenue from contracts with customers and trade receivables (continued) Along with remeasuring the refund liability at the end of each reporting period, the Company updates the measurement of the asset recorded for any revisions to its expected level of returns, as well as any additional decreases in the value of the returned products. As on 31 March 2019 and 31 March 2018, the Company has ` 16 and ` 17, respectively as contract asset representing the right to the returned goods. Details of deferred revenue: Tabulated below is the reconciliation of deferred revenue for the years ended 31 March 2019 and 31 March 2018: For the year ended For the year ended Particulars 31 March 2019 31 March 2018 Balance at the beginning of the year 422 524 Revenue recognised during the year (122) (109) Milestone payment received during the year 88 7 Balance at the end of the year 388 422

Current 105 109 Non-current 283 313 388 422 Details of contract liabilities: As at As at Particulars 31 March 2019 31 March 2018 Advance from customers 517 192 517 192

2.12 Other operating income For the year ended For the year ended Particulars 31 March 2019 31 March 2018 Sale of spent chemicals 356 297 Scrap sales 161 160 Miscellaneous income 9 110 526 567

2.13 Other income For the year ended For the year ended Particulars 31 March 2019 31 March 2018 Interest income On fi xed deposits 27 118 On loans to subsidiaries 93 164 Others 692 367 Profi t on sale of mutual funds, net 448 779 Profi t on disposal of property, plant and equipment and other intangibles, net(1) 400 - Foreign exchange gain, net 288 349 Fair value gain on fi nancial instruments measured at fair value through profi t or loss 221 33 Miscellaneous income, net 215 230 2,384 2,040 (1) During the year ended 31 March 2019, the Company sold one of its API manufacturing business units located in Jeedimetla, Hyderabad to Therapiva Private Limited. This sale was done by way of slump sale basis (as defi ned under section 2(42C) of Indian Income Tax Act,1961) including all related property, plant and equipment, current assets, current liabilities, and transfer of employees. Gain on disposal of assets includes an amount of ` 423 representing the profi t on sale of such business unit. (Refer note 2.1 of these fi nancial statements for further details). 2.14 Changes in inventories of fi nished goods, work-in-progress and stock-in-trade For the year ended For the year ended Particulars 31 March 2019 31 March 2018 Opening Work-in-progress 6,278 6,039 Finished goods 2,912 2,428 Stock-in-trade 1,527 10,717 1,734 10,201

Closing Work-in-progress 5,630 6,278 Finished goods 3,070 2,912 Stock-in-trade 1,357 10,057 1,527 10,717 660 (516)

Building a winning future 145 Dr. Reddy’s Laboratories Limited

NOTES TO FINANCIAL STATEMENTS

(All amounts in Indian Rupees millions, except share data and where otherwise stated)

2.15 Employee beneﬁ ts expense For the year ended For the year ended Particulars 31 March 2019 31 March 2018 Salaries, wages and bonus 16,435 15,617 Contribution to provident and other funds 1,076 1,093 Staff welfare expenses 1,406 1,266 Share-based payment expenses 402 454 19,319 18,430

2.16 Depreciation and amortisation expense For the year ended For the year ended Particulars 31 March 2019 31 March 2018 Depreciation of property, plant and equipment 7,017 6,896 Amortisation of intangible assets 789 845 7,806 7,741

2.17 Finance costs For the year ended For the year ended Particulars 31 March 2019 31 March 2018 Interest on long-term borrowings 172 113 Interest on other borrowings 396 515 568 628

2.18 Selling and other expenses For the year ended For the year ended Particulars 31 March 2019 31 March 2018 Consumption of stores, spares and other materials 4,242 5,080 Clinical trial expenses 1,270 2,662 Other research and development expenses 3,819 4,312 Advertisements 56 147 Commission on sales 162 163 Carriage outward 2,587 2,091 Other selling expenses 8,860 8,534 Legal and professional 2,991 3,141 Power and fuel 2,958 2,973 Repairs and maintenance Buildings 255 367 Plant and machinery 706 677 Others 1,420 1,780 Insurance 185 182 Travel and conveyance 766 786 Rent 162 154 Rates and taxes 329 228 Corporate Social Responsibility and donations(1) 444 494 Allowance for credit losses, net (Refer note 2.4 B) 212 (12) Allowance for doubtful advances, net (351) (36) Non-Executive Directors’ remuneration 80 61 Auditors’ remuneration (Refer note 2.20) 15 15 Loss on sale of non-current investments - 341 Provision/(reversal of provision) relating to non-current investments 359 (525) Loss on sale/disposal of property , plant and equipment and other intangibles, net - 55 Other general expenses 2,034 1,884 33,561 35,554

(1) Details of Corporate Social Responsibility expenditure in accordance with section 135 of the Companies Act, 2013: Particulars In cash Yet to be paid in cash Total Gross amount required to be spent by the Company during the year 236 Amount spent during the year ending on 31 March 2019 262 - 262 Amount spent during the year ending on 31 March 2018 328 -* 328 * Rounded off to millions.

146 Company Overview Statutory Reports Financial Statements Annual Report 2018-19

Standalone NOTES TO FINANCIAL STATEMENTS

(All amounts in Indian Rupees millions, except share data and where otherwise stated)

2.19 Research and development expenses Details of research and development expenses (excluding depreciation and amortisation expense) incurred during the year and included under various heads of expenditures are given below: For the year ended For the year ended Particulars 31 March 2019 31 March 2018 Employee beneﬁ ts expense (included in note 2.15) 3,154 3,116 Other expenses (included in note 2.18) Clinical trial expenses 1,270 2,662 Materials and consumables 2,880 3,740 Power and fuel 172 155 Other research and development expenses 3,819 4,312 11,295 13,985

2.20 Auditors’ remuneration For the year ended For the year ended Particulars 31 March 2019 31 March 2018 Audit fees 12 12 Other charges – Certiﬁ cation fee 1 1 Reimbursement of out of pocket expenses 2 2 15 15

2.21 Earnings per share (EPS) For the year ended For the year ended Particulars 31 March 2019 31 March 2018 Earnings Proﬁ t attributable to equity share holders of the Company 12,773 5,669 Shares Number of equity shares at the beginning of the year 165,910,907 165,741,713 Eff ect of treasury shares held (100,672) - Eff ect of equity shares issued on exercise of stock options 103,801 103,695 Weighted average number of equity shares – Basic 165,914,036 165,845,408 Dilutive eff ect of stock options outstanding(1) 278,718 340,144 Weighted average number of equity shares – Diluted 166,192,754 166,185,552 Earnings per share of par value ` 5/- – Basic (`) 76.98 34.19 Earnings per share of par value ` 5/- – Diluted (`) 76.85 34.12 (1) As at 31 March 2019, 272,700 options were excluded from the diluted weighted average number of equity shares calculation because their eff ect would have been anti-dilutive. The average market value of the Company’s shares for the purpose of calculating the dilutive eff ect of stock options was based on quoted market prices for the year during which the options were outstanding. 2.22 Related parties a) List of all subsidiaries, joint ventures and other consolidating entities: Subsidiaries including step down subsidiaries 1 Aurigene Discovery Technologies (Malaysia) SDN BHD, Malaysia 2 Aurigene Discovery Technologies Inc., USA 3 Aurigene Discovery Technologies Limited, India 4 beta Institut gemeinnützige GmbH, Germany 5 betapharm Arzneimittel GmbH, Germany 6 Cheminor Investments Limited, India 7 Chirotech Technology Limited, UK 8 Dr. Reddy’s Bio-sciences Limited, India 9 Dr. Reddy’s Farmaceutica Do Brasil Ltda., Brazil 10 Dr. Reddy’s Laboratories (Australia) Pty. Limited, Australia 11 Dr. Reddy’s Laboratories (EU) Limited, UK 12 Dr. Reddy’s Laboratories (Proprietary) Limited, South Africa 13 Dr. Reddy’s Laboratories (UK) Limited, UK 14 Dr. Reddy’s Laboratories Canada, Inc., Canada 15 Dr. Reddy’s Laboratories Chile SPA., Chile (from 16 June 2017) 16 Dr. Reddy’s Laboratories Inc., USA 17 Dr. Reddy’s Laboratories International SA, Switzerland 18 Dr. Reddy’s Laboratories Japan KK, Japan

Building a winning future 147 Dr. Reddy’s Laboratories Limited

NOTES TO FINANCIAL STATEMENTS

(All amounts in Indian Rupees millions, except share data and where otherwise stated)

2.22 Related parties (continued) 19 Dr Reddy’s Laboratories Kazakhstan, Kazakhstan 20 Dr. Reddy’s Laboratories LLC, Ukraine 21 Dr. Reddy’s Laboratories Louisiana LLC, USA 22 Dr. Reddy’s Laboratories Malaysia Sdn. Bhd., Malaysia (from 10 July 2017) 23 Dr. Reddy’s Laboratories New York, Inc., USA 24 Dr. Reddy’s Laboratories Romania S.R.L., Romania 25 Dr. Reddy’s Laboratories SA, Switzerland 26 Dr. Reddy’s Laboratories SAS, Colombia 27 Dr. Reddy’s Laboratories Taiwan Limited, Taiwan (from 23 February 2018) 28 Dr. Reddy’s Laboratories Tennessee, LLC, USA (till 1 October 2018) 29 Dr. Reddy’s New Zealand Limited, New Zealand 30 Regkinetics Services Limited, India (formerly Dr. Reddy’s Pharma SEZ Limited) 31 Dr. Reddy’s Research and Development B.V. (formerly Octoplus BV) 32 Dr. Reddy’s Singapore PTE Limited, Singapore (under liquidation) 33 Dr. Reddy’s Srl, Italy 34 Dr. Reddy’s (WUXI) Pharmaceutical Co. Ltd, China (from 2 June 2017) 35 Dr. Reddy’s Venezuela, C.A., Venezuela 36 DRL Impex Limited, India 37 Eurobridge Consulting B.V., Netherlands 38 Idea2Enterprises (India) Private Limited, India 39 Imperial Credit Private Limited, India (Acquired w.e.f. from 22 February 2017) 40 Industrias Quimicas Falcon de Mexico, S.A.de C.V, Mexico 41 Lacock Holdings Limited, Cyprus 42 Dr. Reddy’s Philippines Inc., Philippines (from 9 May 2018) 43 Dr. Reddy’s (Thailand) Limited, Thailand (from 13 June 2018) 44 OOO Dr. Reddy’s Laboratories Limited, Russia 45 OOO DRS LLC, Russia 46 Promius Pharma LLC, USA 47 Reddy Antilles N.V., Netherlands 48 Reddy Holding GmbH, Germany 49 Reddy Netherlands B.V., Netherlands 50 Reddy Pharma Iberia SA, Spain 51 Reddy Pharma Italia S.R.L, Italy 52 Reddy Pharma SAS, France Joint ventures Kunshan Rotam Reddy Pharmaceutical Enterprise over which the Company exercises joint control with other joint venture 53 Company Limited (“Reddy Kunshan”), China partners and holds 51.33% of equity shares Enterprise over which the Company’s step down subsidiary exercises joint control 54 DRANU LLC, USA with other joint venture partner and holds 50% of equity shares DRSS Solar Power Private Limited, India Enterprise over which the Company exercises joint control with other joint venture 55 (liquidated during the year ended partners and holds 26% of equity shares 31 March 2018) Enterprise over which the Company exercises joint control with other joint venture 56 DRES Energy Private Limited, India partners and holds 26% of equity shares Other consolidating entities The Company does not have any equity interests in this entity, but has signifi cant 57 Cheminor Employees Welfare Trust, India infl uence or control over it. The Company does not have any equity interests in this entity, but has signifi cant 58 Dr. Reddy’s Research Foundation, India infl uence or control over it. Dr. Reddy’s Employees ESOS Trust, India The Company does not have any equity interests in this entity, but has signifi cant 59 (from 27 July 2018) infl uence or control over it.

148 Company Overview Statutory Reports Financial Statements Annual Report 2018-19

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(All amounts in Indian Rupees millions, except share data and where otherwise stated)

2.22 Related parties (continued) b) List of other related parties with whom transactions have taken place during the current and/or previous year: 1 Dr. Reddy’s Institute of Life Sciences Enterprise over which whole-time directors have signifi cant infl uence 2 Stamlo Hotels Limited Enterprise controlled by whole-time directors 3 Green Park Hotels and Resorts Limited Enterprise controlled by relative of a whole-time director 4 K Samrajyam Mother of Chairman 5 G Anuradha Spouse of Chief Executive Offi cer 6 Deepti Reddy Spouse of Chairman 7 G Mallika Reddy Daughter of Chief Executive Offi cer 8 G V Sanjana Reddy Daughter of Chief Executive Offi cer 9 Akhil Ravi (from 5 March 2018) Son-in-law of Chief Executive Offi cer Enterprise over which whole-time directors and their relatives have signifi cant 10 Dr. Reddy’s Foundation infl uence Enterprise over which whole-time directors and their relatives have signifi cant 11 Pudami Educational Society infl uence 12 Indus Projects Private Limited Enterprise over which relatives of whole-time directors have signifi cant infl uence 13 CERG Advisory Private Limited Enterprise controlled by Key Managerial Personnel 14 Green Park Hospitality Services Private Limited Enterprise controlled by relative of a whole-time director Further, the Company contributes to the Dr. Reddy’s Laboratories Gratuity Fund, which maintains the plan assets of the Company’s Gratuity Plan for the benefi t of its employees. Refer note 2.24 of these fi nancial statements for informati on on transacti ons between the Company and the Gratuity Fund c) In accordance with the provisions of Ind AS 24, Related Party Disclosures and the Companies Act, 2013, Company’s Directors, members of the Company’s Management Council and Company Secretary are considered as Key Management Personnel. List of Key Management Personnel of the Company is as below: 1 K Satish Reddy Whole-time director 2 G V Prasad Whole-time director 3 Anupam Puri Independent director 4 Bharat Narotam Doshi Independent director 5 Dr. Ashok Ganguly (till 28 July 2017) Independent director 6 Dr. Bruce LA Carter Independent director 7 Dr. Omkar Goswami Independent director 8 Hans Peter Hasler (till 14 June 2018) Independent director 9 Leo Puri (from 25 October 2018) Independent director 10 Kalpana Morparia Independent director 11 Allan Oberman (from 26 March 2019) Independent director 12 Shikha Sharma (from 31 January 2019) Independent director 13 Sridar Iyengar Independent director 14 Prasad R Menon (from 30 October 2017) Independent director 15 Abhijit Mukherjee (till 31 March 2018) Management council 16 Alok Sonig (till 7 September 2018) Management council 17 Anil Namboodiripad Management council 18 Archana Bhaskar (from 15 June 2017) Management council 19 Deepak Sapra (from 1 October 2018) Management council 20 Dr. Amit Biswas (till 21 June 2018) Management council 21 Dr. Cartikeya Reddy (till 30 September 2018) Management council 22 Dr. Chandrasekhar Sripada (till 31 July 2017) Management council 23 Dr. K V S Ram Rao (till 1 October 2018) Management council 24 Dr. Raymond de Vre (from 1 June 2018) Management council 25 Erez Israeli (from 2 April 2018) Management council 26 Ganadhish Kamat Management council 27 J Ramachandran (till 31 October 2017) Management council 28 Marc Kikuchi (from 1 Feb 2019) Management council 29 M V Ramana Management council 30 P. Yougandhar (from 1 April 2018) Management council 31 Samiran Das (till 31 January 2018) Management council 32 Sanjay Sharma (from 1 August 2017) Management council 33 Saumen Chakraborty Management council 34 Sauri Gudlavalleti (from 1 April 2018) Management council 35 Sandeep Poddar Company secretary

Building a winning future 149 Dr. Reddy’s Laboratories Limited

NOTES TO FINANCIAL STATEMENTS

(All amounts in Indian Rupees millions, except share data and where otherwise stated)

2.22 Related parties (continued) d) Particulars of related party transactions The following is a summary of signiﬁ cant related party transactions: For the year ended For the year ended Particulars 31 March 2019 31 March 2018 Revenues from Subsidiaries including step down subsidiaries Dr. Reddy’s Laboratories Inc. 31,953 31,750 OOO Dr. Reddy’s Laboratories Limited 11,553 9,581 Dr. Reddy’s Laboratories SA 5,500 4,845 Others 11,350 6,377 Total 60,356 52,553 Joint Ventures Kunshan Rotam Reddy Pharmaceutical Company 23 - Total 23 -

Interest income from subsidiaries including step down subsidiaries Industrias Quimicas Falcon de Mexico S.A. de C.V. 74 147 Dr. Reddy’s Farmaceutica Do Brasil Ltda. 19 17 Total 93 164

Service income from subsidiaries including step down subsidiaries Dr. Reddy’s Laboratories Inc. 116 141 Dr. Reddy’s Laboratories SA 9 9 Total 125 150

Licence fees from subsidiaries including step down subsidiaries Dr. Reddy’s Laboratories Inc. 40 34 Dr. Reddy’s Laboratories SA 11 (7) Total 51 27

Commission on guarantee to Dr. Reddy’s Laboratories SA 89 78

Rent from Aurigene Discovery Technologies Limited 14 14

Reimbursement of operating expenses by Aurigene Discovery Technologies Limited 42 35

Purchases and services from Subsidiaries including step down subsidiaries OOO Dr. Reddy’s Laboratories Limited 2,990 3,114 Dr. Reddy’s Research and Development B.V. 978 1,020 Dr. Reddy’s Laboratories Inc. 796 856 Dr. Reddy’s Laboratories LLC, Ukraine 546 491 Dr. Reddy’s Laboratories (EU) Limited 438 582 Others 1,315 744 Total 7,063 6,807 Other related parties Dr. Reddy’s Institute of Life Sciences 97 98 Indus Projects Private Limited 106 - Others 1 - Total 204 98

Purchase of assets from subsidiaries including step down subsidiaries Dr. Reddy’s Laboratories Louisiana LLC 6 - Dr. Reddy’s Laboratories (UK) Limited 4 - Total 10 -

Contributions towards social development Dr. Reddy’s Foundation 192 203 Pudami Educational Society 28 35 Total 220 238

150 Company Overview Statutory Reports Financial Statements Annual Report 2018-19

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(All amounts in Indian Rupees millions, except share data and where otherwise stated)

2.22 Related parties (continued) For the year ended For the year ended Particulars 31 March 2019 31 March 2018 Catering services from Green Park Hospitality Services Private Limited 270 178

Hotel expenses Green Park Hotels and Resorts Limited 21 41 Stamlo Hotels Private Limited 5 8 Total 26 49

Lease rentals paid under cancellable operating leases to Key Management Personnel K Satish Reddy 13 13 Relatives of Key Management Personnel G Anuradha 12 12 K Deepti Reddy 3 3 K Samrajyam 2 2 G Mallika Reddy 2 2 G V Sanjana Reddy 2 2 Total 34 34

Salaries to relatives of Key Managerial Personnel 5 1

Remuneration to Key Management Personnel Salaries and other beneﬁ ts(1) 556 387 Contributions to deﬁ ned contribution plans 35 38 Commission to directors 243 153 Share-based payments expense 101 116 Total 935 694 (1) Some of the Key Management Personnel of the Company are also covered under the Company’s Gratuity Plan along with the other employees of the Company. Proportionate amounts of gratuity accrued under the Company’s Gratuity Plan have not been separately computed or included in the above disclosure. For the year ended For the year ended Particulars 31 March 2019 31 March 2018 Investment made/(disposed) in Subsidiaries Reddy Antilles N.V. 359 - Regkinetics Services Limited - 200 Reddy Pharma Iberia SA - (566) Cheminor Investments Limited - -* Total 359 (366) Joint Ventures DRSS Solar Power Private Limited (Liquidated during the year ended 31 March 2018) - -* Total - -* * Rounded off to millions.

Impairment/(reversal of impairment) in the value of non-current investments Subsidiaries Reddy Antilles N.V. 359 52 Reddy Pharma Iberia SA - (566) Dr. Reddy’s Farmaceutica Do Brasil Ltda. - (12) Total 359 (526) Joint Ventures DRSS Solar Power limited (liquidated during the year ending 31 March 2018) - -* Total - -* * Rounded off to millions.

Proceeds on disposal of investments from Dr. Reddy’s Laboratories SA* - 224 * Sale of investment in Reddy Pharma Iberia SA Total - 224

Building a winning future 151 Dr. Reddy’s Laboratories Limited

NOTES TO FINANCIAL STATEMENTS

(All amounts in Indian Rupees millions, except share data and where otherwise stated)

2.22 Related parties (continued) For the year ended For the year ended Particulars 31 March 2019 31 March 2018 Loans and advances given/(repaid by), net Subsidiaries including step down subsidiaries Industrias Quimicas Falcon de Mexico S.A. de C.V. (1,790) 10 Dr. Reddy’s Farmaceutica Do Brasil Ltda. (10) (74) Reddy Antilles N.V. (359) - Total (2,159) (64) Joint ventures DRES Energy Private Limited 20 - Total 20 - * Loans given/(repaid by) is inclusive of accrued interest.

Movement in other receivables from subsidiaries including step down subsidiaries Reddy Antilles N.V. 17 -

Provision made/(reversed) on loans given to subsidiaries including step down subsidiaries Reddy Antilles N.V.* (359) 179 Dr. Reddy’s Farmaceutica Do Brasil Ltda. - (246) Total (359) (67)

Provision made/(reversed) in other receivables from subsidiaries including step down subsidiaries Reddy Antilles N.V. (17) 19

Guarantee given/(released) on behalf of Dr. Reddy’s Laboratories SA - 16,294 e) The Company has the following amounts due from/to related parties: As at As at Particulars 31 March 2019 31 March 2018 Due from related parties Subsidiaries including step down subsidiaries (included in trade receivables) Dr. Reddy’s Laboratories Inc. 14,800 21,082 OOO Dr. Reddy’s Laboratories Limited 4,729 6,156 Others 8,762 10,689 Total 28,291 37,927 Others Greenpark Hospitality Services Private Limited 75 40 Rental deposit to Key Management Personnel and their relatives 8 8 Total 83 48

Provision outstanding at the end of the year towards dues from subsidiaries including step down subsidiaries (included in trade receivables) Dr. Reddy’s Venezuela, C.A. - 3,474 Others - 92 Total - 3,566

Due to related parties (included in trade payables and other current liabilities) Subsidiaries including step down subsidiaries and other consolidating entities OOO Dr. Reddy’s Laboratories Limited 1,064 2,457 Dr. Reddy’s Laboratories Inc. 458 713 Promius Pharma LLC, USA 370 163 Dr. Reddy’s Research and Development B.V. 128 209 Dr. Reddy’s Laboratories (EU) Limited 172 174 Others 447 438 Total 2,639 4,154

152 Company Overview Statutory Reports Financial Statements Annual Report 2018-19

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(All amounts in Indian Rupees millions, except share data and where otherwise stated)

2.22 Related parties (continued) For the year ended For the year ended Particulars 31 March 2019 31 March 2018 Due to related parties (included in trade payables and other current liabilities) (continued) Others Dr. Reddy’s Institute of Life Sciences 10 10 Greenpark Hospitality Services Private Limited 63 3 Green Park Hotels & Resorts Limited -* 1 Indus Projects Private Limited 7 - Stamlo Hotels Private Limited - -* Total 80 14 * Rounded off to millions.

Outstanding Guarantee given on behalf of Dr. Reddy’s Laboratories SA 17,289 16,294 Equity held in subsidiaries and joint venture has been disclosed under “Financial assets-Investments” (Note 2.4 A). Loans and advances to subsidiaries and joint venture have been disclosed under “Loans” (Note 2.4 C). Other receivables from subsidiaries and joint venture have been disclosed under “Other ﬁ nancial assets” (Note 2.4 D). 2.23 Employee stock incentive plans Dr. Reddy’s Employees Stock Option Plan -2002 (the “DRL 2002 Plan”): The Company instituted the DRL 2002 Plan for all eligible employees pursuant to the special resolution approved by the shareholders in the Annual General Meeting held on 24 September 2001. The DRL 2002 Plan covers all employees of DRL and its subsidiaries and directors (excluding promoter directors) of DRL and its subsidiaries (collectively, “eligible employees”). The Nomination, Governance and Compensation Committee of the Board of DRL (the “Committee”) administer the DRL 2002 Plan and grants stock options to eligible employees. The Committee determines which eligible employees will receive options, the number of options to be granted, the exercise price, the vesting period and the exercise period. The vesting period is determined for all options issued on the date of grant. The options issued under the DRL 2002 Plan vest in periods ranging between one and four years and generally have a maximum contractual term of ﬁ ve years. The DRL 2002 Plan, as amended at annual general meetings of shareholders held on 28 July 2004 and on 27 July 2005, provides for stock option grants in two categories: Category A: 300,000 stock options out of the total of 2,295,478 options reserved for grant having an exercise price equal to the fair market value of the underlying equity shares on the date of grant; and Category B: 1,995,478 stock options out of the total of 2,295,478 options reserved for grant having an exercise price equal to the par value of the underlying equity shares (i.e., ` 5 per option). Under the DRL 2002 Plan, the exercise price of the fair market value options granted under Category A above is determined based on the average closing price for 30 days prior to the grant in the stock exchange where there is highest trading volume during that period. Notwithstanding the foregoing, the Committee may, after obtaining the approval of the shareholders in the annual general meeting, grant options with a per share exercise price other than fair market value and par value of the equity shares. After the stock split effected in the form of stock dividend issued by the Company in August 2006, the DRL 2002 Plan provides for stock option grants in the above two categories as follows: Number of options Number of options Particulars reserved under reserved under Total category A category B Options reserved under original plan 300,000 1,995,478 2,295,478 Options exercised prior to stock dividend date (A) 94,061 147,793 241,854 Balance of shares that can be allotted on exercise of options (B) 205,939 1,847,685 2,053,624 Options arising from stock dividend (C) 205,939 1,847,685 2,053,624 Options reserved after stock dividend (A+B+C) 505,939 3,843,163 4,349,102 The term of the DRL 2002 plan was extended for a period of 10 years eff ective as of 29 January 2012 by the shareholders at the Company’s Annual General Meeting held on 20 July 2012.

Building a winning future 153 Dr. Reddy’s Laboratories Limited

NOTES TO FINANCIAL STATEMENTS

(All amounts in Indian Rupees millions, except share data and where otherwise stated)

2.23 Employee stock incentive plans (continued) Stock option activity under the DRL 2002 Plan for the two categories of options during the years ended 31 March 2019 and 31 March 2018 is as follows: Category A —Fair Market Value Options: There was no stock options activity under this category during the year 31 March 2019 and 31 March 2018 and there were no stock options outstanding under this category as of 31 March 2019 and 31 March 2018. Category B —Par Value Options For the year ended 31 March 2019 Weighted Weighted average Shares arising out Range of exercise Particulars average remaining useful of options prices exercise price life (months) Outstanding at the beginning of the year 320,544 5.00 5.00 70 Granted during the year 122,372 5.00 5.00 90 Expired/forfeited during the year (50,651) 5.00 5.00 - Exercised during the year (122,124) 5.00 5.00 - Outstanding at the end of the year 270,141 5.00 5.00 73 Exercisable at the end of the year 32,836 5.00 5.00 42

Category B — Par Value Options For the year ended 31 March 2018 Weighted Weighted average Shares arising out Range of exercise Particulars average remaining useful of options prices exercise price life (months) Outstanding at the beginning of the year 330,142 5.00 5.00 69 Granted during the year 158,112 5.00 5.00 90 Expired/forfeited during the year (23,318) 5.00 5.00 - Exercised during the year (144,392) 5.00 5.00 - Outstanding at the end of the year 320,544 5.00 5.00 70 Exercisable at the end of the year 47,383 5.00 5.00 49 The weighted average grant date fair value of options granted during the years ended 31 March 2019 and 31 March 2018 was ` 2,195 and ` 2,546 per option, respectively. The weighted average share price on the date of exercise of options during the years ended 31 March 2019 and 31 March 2018 was ` 2,302 and ` 2,375 per share, respectively. The aggregate intrinsic value of options exercised during the years ended 31 March 2019 and 31 March 2018 was ` 281 and ` 342, respectively. As of 31 March 2019, options outstanding had an aggregate intrinsic value of ` 750 and options exercisable had an aggregate intrinsic value of ` 91. Dr. Reddy’s Employees ADR Stock Option Plan, 2007 (the “DRL 2007 Plan”): The Company instituted the DRL 2007 Plan for all eligible employees in pursuance of the special resolution approved by the shareholders in the Annual General Meeting held on 27 July 2005. The DRL 2007 Plan became eff ective upon its approval by the Board of Directors on 22 January 2007. The DRL 2007 Plan covers all employees and directors (excluding promoter directors) of DRL and its subsidiaries (collectively, “eligible employees”). The Committee administers the DRL 2007 Plan and grants stock options to eligible employees. The Committee determines which eligible employees will receive the options, the number of options to be granted, the exercise price, the vesting period and the exercise period. The vesting period is determined for all options issued on the date of grant. The options issued under the DRL 2007 Plan vest in periods ranging between one and four years and generally have a maximum contractual term of ﬁ ve years. The DRL 2007 Plan provides for option grants in two categories: Category A: 382,695 stock options out of the total of 1,530,779 stock options reserved for grant having an exercise price equal to the fair market value of the underlying equity shares on the date of grant; and Category B: 1,148,084 stock options out of the total of 1,530,779 stock options reserved for grant having an exercise price equal to the par value of the underlying equity shares (i.e., ` 5 per option).

154 Company Overview Statutory Reports Financial Statements Annual Report 2018-19

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(All amounts in Indian Rupees millions, except share data and where otherwise stated)

2.23 Employee stock incentive plans (continued) Stock option activity under the DRL 2007 Plan for the two categories of options during the years ended 31 March 2019 and 31 March 2018 is as follows: Category A - Fair Market Value Options For the year ended 31 March 2019 Weighted Weighted average Shares arising out Range of exercise Particulars average remaining useful of options prices exercise price life (months) Outstanding at the beginning of the year ---- Granted during the year 149,160 1,982.00/ 2,607.00 2,176.00 90 Expired/forfeited during the year (3,100) 2,607.00 2,607.00 - Exercised during the year ---- Outstanding at the end of the year 146,060 1,982.00/ 2,607.00 2,166.00 81 Exercisable at the end of the year -- --

The weighted average grant date fair value of options granted during the year ended 31 March 2019 was ` 515 per option. As of 31 March 2019, options outstanding had an aggregate intrinsic value of ` 90. Category B — Par Value Options For the year ended 31 March 2019 Weighted Weighted average Shares arising out Range of exercise Particulars average remaining useful of options prices exercise price life (months) Outstanding at the beginning of the year 107,308 5.00 5.00 73 Granted during the year 70,730 5.00 5.00 90 Expired/forfeited during the year (29,966) 5.00 5.00 - Exercised during the year (32,917) 5.00 5.00 - Outstanding at the end of the year 115,155 5.00 5.00 73 Exercisable at the end of the year 9,229 5.00 5.00 43

Category B — Par Value Options For the year ended 31 March 2018 Weighted Weighted average Shares arising out Range of exercise Particulars average remaining useful of options prices exercise price life (months) Outstanding at the beginning of the year 88,141 5.00 5.00 74 Granted during the year 63,304 5.00 5.00 90 Expired/forfeited during the year (19,335) 5.00 5.00 - Exercised during the year (24,802) 5.00 5.00 - Outstanding at the end of the year 107,308 5.00 5.00 73 Exercisable at the end of the year 11,034 5.00 5.00 47 The weighted average grant date fair value of options granted during the years ended 31 March 2019 and 31 March 2018 was ` 2,056 and ` 2,540 per option, respectively. The weighted average share price on the date of exercise of options during the years ended 31 March 2019 and 31 March 2018 was ` 2,445 and ` 2,295 per share, respectively. The aggregate intrinsic value of options exercised during the years ended 31 March 2019 and 31 March 2018 was ` 80 and ` 57, respectively. As of 31 March 2019, options outstanding had an aggregate intrinsic value of ` 320 and options exercisable had an aggregate intrinsic value of ` 26. Dr. Reddy’s Employees Stock Option Scheme, 2018 (the “DRL 2018 Plan”): The Company instituted the DRL 2018 Plan for all eligible employees pursuant to the special resolution approved by the shareholders at the Annual General Meeting held on 27 July 2018. The DRL 2018 Plan covers all employees and directors (excluding independent and promoter directors) of the Company and its subsidiaries (collectively, “eligible employees”). Upon the exercise of options granted under the DRL 2018 Plan, the applicable equity shares may be issued directly by the Company to the eligible employee or may be transferred from the Dr. Reddy’s Employees ESOS Trust (the “ESOS Trust”) to the eligible employee. The ESOS Trust may acquire such equity shares through primary issuances by the Company and/or by way of secondary market acquisitions funded through loans from the Company. The Nomination, Governance and Compensation Committee of the Board of the Company (the “Compensation Committee”) administers the DRL 2018 Plan and grants stock options to eligible employees, but may delegate functions and powers relating to the administration of the DRL 2018 Plan to the ESOS Trust. The Compensation Committee determines which eligible employees will receive the options, the number of options to be granted, the exercise price, the vesting period and the exercise period. The vesting period is determined for all options issued on the date of grant. The options issued under the DRL 2018 Plan vest in periods ranging between the end of one and ﬁ ve years, and generally have a maximum contractual term of ﬁ ve years.

Building a winning future 155 Dr. Reddy’s Laboratories Limited

NOTES TO FINANCIAL STATEMENTS

(All amounts in Indian Rupees millions, except share data and where otherwise stated)

2.23 Employee stock incentive plans (continued) The DRL 2018 Plan provides for option grants having an exercise price equal to the fair market value of the underlying equity shares on the date of grant as follows: Number of securities Number of securities Particulars to be acquired from to be issued by the Total secondary market Company Options reserved against equity shares 2,500,000 1,500,000 4,000,000 Options reserved against ADRs - 1,000,000 1,000,000 Total 2,500,000 2,500,000 5,000,000

As at 31 March 2019, the ESOS Trust purchased 217,976 shares from secondary market for an aggregate consideration of ` 535. Stock option activity under the DRL 2018 Plan during the year ended 31 March 2019 is as follows: Fair Market Value Options For the year ended 31 March 2019 Weighted Weighted average Shares arising out Range of exercise Particulars average remaining useful of options prices exercise price life (months) Outstanding at the beginning of the year ---- Granted during the year 235,700 2,607.00 2,607.00 90 Expired/forfeited during the year (6,100) 2,607.00 2,607.00 - Exercised during the year ---- Outstanding at the end of the year 229,600 2,607.00 2,607.00 84 Exercisable at the end of the year ---- The weighted average grant date fair value of options granted during the year ended 31 March 2019 was ` 667 per option. As of 31 March 2019, options outstanding had an aggregate intrinsic value of ` 40. Valuation of stock options: The fair value of services received in return for stock options granted to employees is measured by reference to the fair value of stock options granted. The fair value of stock options granted under the DRL 2002 Plan, the DRL 2007 Plan and the DRL 2018 Plan has been measured using the Black–Scholes-Merton model at the date of the grant. The Black-Scholes-Merton model includes assumptions regarding dividend yields, expected volatility, expected terms and risk free interest rates. In respect of par value options granted, the expected term of an option (or “option life”) is estimated based on the vesting term and contractual term, as well as the expected exercise behavior of the employees receiving the option. In respect of fair market value options granted, the option life is estimated based on the simplifi ed method. Expected volatility of the option is based on historical volatility, during a period equivalent to the option life, of the observed market prices of the Company’s publicly traded equity shares. Dividend yield of the options is based on recent dividend activity. Risk-free interest rates are based on the government securities yield in eff ect at the time of the grant. These assumptions refl ect management’s best estimates, but these assumptions involve inherent market uncertainties based on market conditions generally outside of the Company’s control. As a result, if other assumptions had been used in the current period, stock-based compensation expense could have been materially impacted. Further, if management uses diff erent assumptions in future periods, stock-based compensation expense could be materially impacted in future years. The estimated fair value of stock options is recognised in the statement of profi t and loss on a straight-line basis over the requisite service period for each separately vesting portion of the award as if the award was, in-substance, multiple awards. The weighted average inputs used in computing the fair value of options granted during the years ended 31 March 2019 and 31 March 2018 were as follows: Grants made on Particulars 31 January 2019 21 September 2018 26 July 2018 21 May 2018 10 July 2017 11 May 2017 Expected volatility 32.92% 33.98% 34.89% 32.97% 30.86% 31.08% ` 5.00/ ` 5.00/ Exercise price ` 5.00 ` 5.00 ` 5.00 ` 5.00 ` 2,607.00 ` 1,982.00 Option life 2.5 Years 2.5 Years 2.5 Years 2.5 Years 2.5 Years 2.5 Years Risk-free interest rate 7.00% 7.90% 7.47% 7.46% 6.48% 6.69% Expected dividends 0.74% 0.78% 0.94% 1.06% 0.77% 0.77% Grant date share price ` 2,720.80 ` 2,556.25 ` 2,132.75 ` 1,893.05 ` 2,726.20 ` 2,594.00

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(All amounts in Indian Rupees millions, except share data and where otherwise stated)

2.23 Employee stock incentive plans (continued) Share-based payment expense For the year ended For the year ended Particulars 31 March 2019 31 March 2018 Equity settled share-based payment expense(1) 389 454 Cash settled share-based payment expense(2) 13 - 402 454 (1) As of 31 March 2019, there was ` 519 of total unrecognised compensation cost related to unvested stock options. This cost is expected to be recognised over a weighted-average period of 2.09 years.

(2) Certain of the Company’s employees are eligible for share-based payment awards that are settled in cash. These awards entitle the employees to a cash payment, on the exercise date, subject to vesting upon satisfaction of certain service conditions which range from one to four years. The amount of cash payment is determined based on the price of the Company’s ADs at the time of vesting. As of 31 March 2019, there was ` 18 of total unrecognised compensation cost related to unvested awards. This cost is expected to be recognised over a weighted-average period of 1.92 years. This Scheme does not involve dealing in or subscribing to or purchasing securities of the Company, directly or indirectly. 2.24 Employee benefi ts Total employee benefi t expenses, including share-based payments, incurred during the years ended 31 March 2019 and 31 March 2018 amounted to ` 19,319 and `18,430, respectively. Gratuity benefi ts provided by the Company In accordance with applicable Indian laws, the Company has a defi ned benefi t plan which provides for gratuity payments (the “Gratuity Plan”) and covers certain categories of employees in India. The Gratuity Plan provides a lump sum gratuity payment to eligible employees at retirement or termination of their employment. The amount of the payment is based on the respective employee’s last drawn salary and the years of employment with the Company. Eff ective 1 September 1999, the Company established the Dr. Reddy’s Laboratories Gratuity Fund (the “Gratuity Fund”) to fund the Gratuity Plan. Liabilities in respect of the Gratuity Plan are determined by an actuarial valuation, based upon which the Company makes contributions to the Gratuity Fund. Trustees administer the contributions made to the Gratuity Fund. Amounts contributed to the Gratuity Fund are invested in bonds issued by the Government of India and in debt securities and equity securities of Indian companies. The components of gratuity cost recognised in the statement of profi t and loss for the years ended 31 March 2019 and 31 March 2018 consist of the following: For the year ended For the year ended Particulars 31 March 2019 31 March 2018 Current service cost 265 252 Interest on net defi ned benefi t liability (2) 6 Gratuity cost recognised in statement of profi t and loss 263 258 Details of the employee benefi ts obligations and plan assets are provided below: As at As at Particulars 31 March 2019 31 March 2018 Present value of funded obligations 2,200 2,007 Fair value of plan assets (2,174) (1,958) Net defi ned benefi t liability recognised 26 49

Details of changes in the present value of defi ned benefi t obligations are as follows: As at As at Particulars 31 March 2019 31 March 2018 Defi ned benefi t obligations at the beginning of the year 2,007 1,840 Current service cost 265 252 Interest on defi ned obligations 145 125 Re-measurements due to: Actuarial loss/(gain) due to change in fi nancial assumptions 28 (121) Actuarial loss/(gain) due to demographic assumptions -* 11 Actuarial loss/(gain) due to experience changes -* 62 Benefi ts paid (245) (162) Defi ned benefi t obligations at the end of the year 2,200 2,007 * Rounded off to millions.

Building a winning future 157 Dr. Reddy’s Laboratories Limited

NOTES TO FINANCIAL STATEMENTS

(All amounts in Indian Rupees millions, except share data and where otherwise stated)

2.24 Employee benefi ts (continued) Details of changes in the fair value of plan assets are as follows: As at As at Particulars 31 March 2019 31 March 2018 Fair value of plan assets at the beginning of the year 1,958 1,687 Employer contributions 294 313 Interest on plan assets 147 121 Re-measurements due to: Return on plan assets excluding interest on plan assets 20 (1) Benefi ts paid (245) (162) Plan assets at the end of the year 2,174 1,958 Sensitivity Analysis: As at Particulars 31 March 2019 Defi ned benefi t obligation without eff ect of projected salary growth 1,276 Add: Eff ect of salary growth 924 Defi ned benefi t obligation with projected salary growth 2,200 Defi ned benefi t obligation, using discount rate minus 50 basis points 2,282 Defi ned benefi t obligation, using discount rate plus 50 basis points 2,123 Defi ned benefi t obligation, using salary growth rate plus 50 basis points 2,280 Defi ned benefi t obligation, using salary growth rate minus 50 basis points 2,123 Summary of the actuarial assumptions: The actuarial assumptions used in accounting for the Gratuity Plan are as follows: The assumptions used to determine benefi t obligations: For the year ended For the year ended Particulars 31 March 2019 31 March 2018 Discount rate 7.45% 7.75% 8% per annum for the 7% per annum for the Rate of compensation increase fi rst year and 9% per fi rst year and 9% per annum thereafter annum thereafter The assumptions used to determine gratuity cost: For the year ended For the year ended Particulars 31 March 2019 31 March 2018 Discount rate 7.75% 7.20% 7% per annum for the 7% per annum for the Rate of compensation increase fi rst year and 9% per fi rst year and 9% per annum thereafter annum thereafter Contributions: The Company expects to contribute ` 26 to the Gratuity Plan during the year ending 31 March 2020. Disaggregation of plan assets: The Gratuity Plan’s weighted-average asset allocation at 31 March 2019 and 31 March 2018, by asset category, was as follows: As at As at Particulars 31 March 2019 31 March 2018 Funds managed by insurers 99% 99% Others 1% 1%

The expected future cash ﬂ ows in respect of gratuity as at 31 March 2019 were as follows: Particulars Amount Expected contributions During the year ended 31 March 2020 (estimated) 26 Expected future beneﬁ t payments 31 March 2020 306 31 March 2021 218 31 March 2022 220 31 March 2023 225 31 March 2024 220 Thereafter 3,111

158 Company Overview Statutory Reports Financial Statements Annual Report 2018-19

Standalone NOTES TO FINANCIAL STATEMENTS

(All amounts in Indian Rupees millions, except share data and where otherwise stated)

2.24 Employee benefi ts (continued) Provident fund benefi ts Certain categories of employees of the Company receive benefi ts from a provident fund, a defi ned contribution plan. Both the employee and employer each make monthly contributions to a government administered fund equal to 12% of the covered employee’s qualifying salary. The Company has no further obligations under the plan beyond its monthly contributions. The Company contributed ` 710 and ` 707 to the provident fund plan during the years ended 31 March 2019 and 31 March 2018, respectively. Superannuation benefi ts Certain categories of employees of the Company participate in superannuation, a defi ned contribution plan administered by the Life Insurance Corporation of India. The Company makes monthly contributions based on a specifi ed percentage of each covered employee’s salary. The Company has no further obligations under the plan beyond its monthly contributions. The Company contributed ` 84 and ` 88 to the superannuation plan during the years ended 31 March 2019 and 31 March 2018, respectively. Compensated absences The Company provides for accumulation of compensated absences by certain categories of its employees. These employees can carry forward a portion of the unutilised compensated absences and utilise them in future periods or receive cash in lieu thereof as per the Company’s policy. The Company records a liability for compensated absences in the period in which the employee renders the services that increases this entitlement. The total liability recorded by the Company towards this obligation was ` 821 and ` 797 as at 31 March 2019 and 31 March 2018, respectively. 2.25 Income taxes a) Income tax expense/(benefi t) recognised in the statement of profi t and loss Income tax expense recognised in the statement of profi t and loss consists of the following: For the year ended For the year ended Particulars 31 March 2019 31 March 2018 Current taxes 2,818 1,381 Deferred taxes expense/(benefi t) 1,416 (80) Total income tax expense recognised in the statement of profi t and loss 4,234 1,301 b) Income tax expense/(benefi t) recognised directly in equity Income tax expense/(benefi t) recognised directly in equity consist of the following: For the year ended For the year ended Particulars 31 March 2019 31 March 2018 Tax eff ect on eff ective portion of change in fair value of cash flow hedges 73 (46) Tax eff ect on actuarial gains/losses on defi ned benefi t obligations (3) 16 Total income tax expense/(benefi t) recognised in the equity 70 (30) c) Reconciliation of eff ective tax rate The following is a reconciliation of the Company’s eff ective tax rates for the years ended 31 March 2019 and 31 March 2018: For the year ended For the year ended Particulars 31 March 2019 31 March 2018 Profi t before income taxes 17,007 6,970 Enacted tax rate in India 34.94% 34.61% Computed expected tax expense 5,942 2,413 Eff ect of: Unrecognised deferred tax assets 398 1,417 Reversal of earlier year’s tax provisions (133) (67) Income exempt from income taxes (1,146) (816) Incremental deduction allowed for research and development costs(1) (1,134) (1,327) Other items 307 (319) Income tax expense 4,234 1,301 Eff ective tax rate 24.90% 18.66% (1) India’s Finance Act, 2016 incorporated an amendment that reduces the weighted deduction on eligible research and development expenditure in a phased manner from 200% to 150% commencing from 1 April 2017, and from 150% to 100% eff ective from 1 April 2020. The Company’s average eff ective tax rate for the years ended 31 March 2019 and 31 March 2018 were 24.90% and 18.66%, respectively.

Building a winning future 159 Dr. Reddy’s Laboratories Limited

NOTES TO FINANCIAL STATEMENTS

(All amounts in Indian Rupees millions, except share data and where otherwise stated)

2.25 Income taxes (continued) d) Unrecognised deferred tax assets The details of unrecognised deferred tax assets are summarised below: As at As at Particulars 31 March 2019 31 March 2018 Taxable/Deductible temporary diff erences, net 4,989 4,591 4,989 4,591 During the year ended 31 March 2019, the Company did not recognise deferred tax assets of ` 398, primarily on MAT credit entitlement, as the Company believes that availability of taxable proﬁ ts is not probable. The above MAT credit expire at various dates ranging from 2031 through 2034. e) Deferred tax assets and liabilities The tax eff ects of signiﬁ cant temporary diff erences that resulted in deferred tax assets and liabilities and a description of the items that created these diff erences is given below: As at As at Particulars 31 March 2019 31 March 2018 Deferred tax assets/(liabilities): Minimum Alternate Tax* 1,630 1,630 Trade receivables 245 1479 Operating tax loss/capital loss - 9 Current liabilities and provisions 266 331 Loans (65) 16 Property , plant and equipment (2,549) (2,518) Investments (82) (16) Net deferred tax assets/(liabilities) (555) 931

* As per Indian tax laws, companies are liable for a Minimum Alternate Tax (“MAT” tax) when current tax, as computed under the provisions of the Income Tax Act, 1961 (“Tax Act”), is determined to be below the MAT tax computed under section 115JB of the Tax Act. The excess of MAT tax over current tax is eligible to be carried forward and set-off in the future against the current tax liabilities over a period of 15 years.

In assessing whether the deferred tax assets will be realised, management considers whether some portion or all of the deferred tax assets will not be realised. The ultimate realisation of the deferred income tax assets and tax loss carry forwards is dependent upon the generation of future taxable income during the periods in which the temporary diff erences become deductible. Management considers the scheduled reversals of deferred tax liabilities, projected future taxable income and tax planning strategy in making this assessment. Based on the level of historical taxable income and projections of future taxable income over the periods in which the deferred tax assets are deductible, management believes that the Company will realise the beneﬁ ts of those recognised deductible diff erences and tax loss carry forwards. Recoverability of deferred tax assets is based on estimates of future taxable income. Any changes in such future taxable income would impact the recoverability of deferred tax assets. f) Movement in deferred tax assets and liabilities during the years ended 31 March 2019 and 31 March 2018 The details of movement in deferred tax assets and liabilities are summarised below: Recognised in the As at Recognised in As at Particulars statement of 1 April 2018 equity 31 March 2019 proﬁ t and loss Deferred tax assets/(liabilities) Minimum Alternate Tax 1,630 - - 1,630 Trade receivables 1,479 (1,234) - 245 Operating tax loss/capital loss 9 (9) - - Current liabilities and provisions 331 5 (70) 266 Loans 16 (81) - (65) Property , plant and equipment (2,518) (31) - (2,549) Investments (16) (66) - (82) Net deferred tax assets/(liabilities) 931 (1,416) (70) (555)

160 Company Overview Statutory Reports Financial Statements Annual Report 2018-19

Standalone NOTES TO FINANCIAL STATEMENTS

(All amounts in Indian Rupees millions, except share data and where otherwise stated)

2.25 Income taxes (continued) Recognised in As at Recognised in As at Particulars the statement of 1 April 2017 equity 31 March 2018 proﬁ t and loss Deferred tax assets/(liabilities) Minimum Alternate Tax 1,636 (6) - 1,630 Trade receivables 1,469 10 - 1,479 Operating tax loss/capital loss 257 (248) - 9 Current liabilities and provisions 437 (136) 30 331 Loans 29 (13) - 16 Property , plant and equipment (2,517) (1) - (2,518) Investments (490) 474 - (16) Net deferred tax assets/(liabilities) 821 80 30 931

2.26 Operating leases The Company has leased offi ces and vehicles under various operating lease agreements that are renewable on a periodic basis at the option of both the lessor and the lessee. Rental expense under these leases was ` 278 and ` 280 for the years ended 31 March 2019 and 31 March 2018, respectively. The schedule of future minimum rental payments in respect of non-cancellable operating leases is set out below: As at As at Particulars 31 March 2019 31 March 2018 Less than one year 118 128 Between one and ﬁ ve years 114 148 Total 232 276

2.27 Finance lease There are no assets taken on fi nance lease as on 31 March 2019 and 31 March 2018. 2.28 Financial instruments Non-derivative fi nancial instruments Non-derivative fi nancial instruments consist of investments in mutual funds, bonds, equity and debt securities, trade receivables, cash and cash equivalents, loans and borrowings, and trade payables. Derivative fi nancial instruments The Company uses derivative contracts like forwards, options and interest rate swaps to mitigate its risk of changes in foreign currency exchange rates and interest rates. The carrying value and fair value of fi nancial instruments as at 31 March 2019 and 31 March 2018 were as follows: As at 31 March 2019 As at 31 March 2018 Particulars Total carrying Total fair value/ Total carrying Total fair value/ value amortised cost value amortised cost Financial assets Cash and cash equivalents 1,132 1,132 1,207 1,207 Investments(1) 39,335 39,335 36,365 36,365 Trade receivables 37,290 37,290 42,207 42,207 Loans 332 332 1,991 1,991 Derivative instruments 335 335 17 17 Other fi nancial assets 1,139 1,139 946 946 Total 79,563 79,563 82,733 82,733

Financial liabilities Trade payables 10,316 10,316 10,610 10,610 Long-term borrowings 3,454 3,454 4,880 4,880 Short-term borrowings 5,463 5,463 21,008 21,008 Derivative instruments 45 45 85 85 Other ﬁ nancial liabilities 10,160 10,160 11,386 11,386 Total 29,438 29,438 47,969 47,969

(1) Interest accrued but not due on investments is included in other ﬁ nancial assets.

Building a winning future 161 Dr. Reddy’s Laboratories Limited

NOTES TO FINANCIAL STATEMENTS

(All amounts in Indian Rupees millions, except share data and where otherwise stated)

2.28 Financial instruments (continued) Fair value hierarchy Level 1 - Quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2 - Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e., as prices) or indirectly (i.e., derived from prices). Level 3 - Inputs for the assets or liabilities that are not based on observable market data (unobservable inputs). The following table presents the fair value hierarchy of assets and liabilities measured at fair value on a recurring basis as of 31 March 2019: Particulars Level 1 Level 2 Level 3 Total FVTPL - Financial asset - Investments in units of mutual funds 14,900 - - 14,900 FVTOCI - Financial asset - Investment in equity securities 38 - - 38 Derivative ﬁ nancial instruments – net gain/(loss) on outstanding foreign exchange forward, option and swap contracts and - 290 - 290 interest rate swap contracts(1)

The following table presents the fair value hierarchy of assets and liabilities measured at fair value on a recurring basis as of 31 March 2018: Particulars Level 1 Level 2 Level 3 Total FVTPL - Financial asset - Investments in units of mutual funds 13,317 - - 13,317 FVTOCI - Financial asset - Investment in equity securities 30 - - 30 Derivative fi nancial instruments - gain/(loss) on outstanding foreign exchange forward, option and swap contracts and - (67) - (67) interest rate swap contracts(1) (1) The Company enters into derivative fi nancial instruments with various counterparties, principally fi nancial institutions and banks. Derivatives valued using valuation techniques with market observable inputs are mainly interest rate swaps, foreign exchange forward option and swap contracts. The most frequently applied valuation techniques include forward pricing, swap models and Black-Scholes-Merton models (for option valuation), using present value calculations. The models incorporate various inputs including foreign exchange forward rates, interest rate curves and forward rate curves. As at 31 March 2019 and 31 March 2018, the changes in counterparty credit risk had no material eff ect on the hedge eff ectiveness assessment for derivatives designated in hedge relationships and other fi nancial instruments recognised at fair value. Derivative fi nancial instruments The Company had a derivative fi nancial asset and derivative fi nancial liability of ` 335 and ` 45, respectively, as at 31 March 2019 as compared to derivative fi nancial asset and derivative fi nancial liability of ` 17 and ` 85, respectively, as at 31 March 2018 towards these derivative fi nancial instruments. Details of gain/(loss) recognised in respect of derivative contracts The following table presents details in respect of the gain/(loss) recognised in respect of derivative contracts during the applicable year ended: For the year ended For the year ended Particulars 31 March 2019 31 March 2018 Net gain/(loss) recognised as part of foreign exchange gain and losses in respect of foreign (35) 491 exchange derivative contracts Net gain/(loss) recognised in equity in respect of hedges of highly probable forecast transactions 209 (133) Net gain/(loss) recognised as component of revenue (529) 653 The net carrying amount of the Company’s “hedging reserve” as a component of equity before adjusting for tax impact was a gain of ` 205 as at 31 March 2019, as compared to a loss of ` 4 as at 31 March 2018. Outstanding foreign exchange derivative contracts The following table gives details in respect of the notional amount of outstanding foreign exchange derivative contracts as of 31 March 2019: Category Instrument Currency Cross Currency(1) Amount in millions Buy/Sell Forward contract US$ INR US$ 261 Sell Hedges of recognised assets and Forward contract RUB INR RUB 2,710 Sell liabilities Forward contract GBP INR GBP 18 Sell Hedges of highly probable forecasted Forward contract RUB INR RUB 1,350 Sell transactions Option contract US$ INR US$ 300 Sell (1) “INR” means Indian Rupees, “RUB” means Russian roubles, “GBP” means U.K pounds sterling and “US$” means United States dollars.

162 Company Overview Statutory Reports Financial Statements Annual Report 2018-19

Standalone NOTES TO FINANCIAL STATEMENTS

(All amounts in Indian Rupees millions, except share data and where otherwise stated)

2.28 Financial instruments (continued) The following table gives details in respect of the notional amount of outstanding foreign exchange derivative contracts as of 31 March 2018: Category Instrument Currency Cross Currency(1) Amounts in millions Buy/Sell Forward contract US$ INR US$ 72 Sell Hedges of recognised assets and Forward contract US$ RUB US$ 14 Buy liabilities Option contract US$ INR US$ 65 Sell Hedges of highly probable forecasted Forward contract RUB INR RUB 1,080 Sell transactions Option contract US$ INR US$ 240 Sell (1) “INR” means Indian Rupees, “RUB” means Russian roubles, “GBP” means U.K pounds sterling and “US$” means United States dollars. The table below summarises the periods when the cash fl ows associated with highly probable forecast transactions that are classifi ed as cash fl ow hedges are expected to occur: As at As at Particulars 31 March 2019 31 March 2018 Cash fl ows in United States dollars Not later than one month 2,420 1,955 Later than one month and not later than three months 4,841 3,911 Later than three months and not later than six months 7,261 5,866 Later than six months and not later than one year 6,225 3,910 20,747 15,642 Cash fl ows in Russian roubles Not later than one month 161 102 Later than one month and not later than three months 320 204 Later than three months and not later than six months 480 306 Later than six months and not later than one year 480 611 1,441 1,223 Hedges of changes in the interest rates: Consistent with its risk management policy, the Company uses interest rate swaps (including cross currency interest rate swaps) to mitigate the risk of changes in interest rates. The Company does not use them for trading or speculative purposes. The changes in fair value of such interest rate swaps (including cross currency interest rate swaps) are recognised as part of fi nance cost. As at 31 March 2019 and 31 March 2018, the Company had no outstanding interest rate swap arrangements. 2.29 Financial risk management The Company’s activities expose it to a variety of fi nancial risks, including market risk, credit risk and liquidity risk. The Company’s primary risk management focus is to minimise potential adverse eff ects of market risk on its fi nancial performance. The Company’s risk management assessment and policies and processes are established to identify and analyse the risks faced by the Company, to set appropriate risk limits and controls, and to monitor such risks and compliance with the same. Risk assessment and management policies and processes are reviewed regularly to refl ect changes in market conditions and the Company’s activities. The Board of Directors and the Audit Committee is responsible for overseeing the Company’s risk assessment and management policies and processes. a) Market risk Market risk is the risk of loss of future earnings, fair values or future cash fl ows that may result from adverse changes in market rates and prices (such as interest rates, foreign currency exchange rates and commodity prices) or in the price of market risk-sensitive instruments as a result of such adverse changes in market rates and prices. Market risk is attributable to all market risk-sensitive fi nancial instruments, all foreign currency receivables and payables and all short-term and long-term debt. The Company is exposed to market risk primarily related to foreign exchange rate risk, interest rate risk and the market value of its investments. Thus, the Company’s exposure to market risk is a function of investing and borrowing activities and revenue generating and operating activities in foreign currencies. Foreign exchange risk The Company’s foreign exchange risk arises from its foreign operations, foreign currency revenues and expenses, (primarily in United States dollars, Russian roubles, U.K pounds sterling and Euros) and foreign currency borrowings (in United States dollars). A signifi cant portion of the Company’s revenues are in these foreign currencies, while a signifi cant portion of its costs are in Indian rupees. As a result, if the value of the Indian rupee appreciates relative to these foreign currencies, the Company’s revenues measured in Indian rupees may decrease. The exchange rate between the Indian rupee and these foreign currencies has changed substantially in recent periods and may continue to fl uctuate substantially in the future. Consequently, the Company uses both derivative and non-derivative fi nancial instruments, such as foreign exchange forward contracts, option contracts, currency swap contracts and foreign currency fi nancial liabilities, to mitigate the risk of changes in foreign currency exchange rates in respect of its highly probable forecast transactions and recognised assets and liabilities.

Building a winning future 163 Dr. Reddy’s Laboratories Limited

NOTES TO FINANCIAL STATEMENTS

(All amounts in Indian Rupees millions, except share data and where otherwise stated)

2.29 Financial risk management (continued) The details in respect of the outstanding foreign exchange forward and option contracts are given in note 2.28 above. In respect of the Company’s forward contracts and option contracts, a 10% decrease/increase in the respective exchange rates of each of the currencies underlying such contracts would have resulted in:

a ` 1,884/(1,363) increase/(decrease) in the Company’s hedging reserve and a ` 2,256/(2,256) increase/(decrease) in the Company’s net proﬁ t from such contracts, as at 31 March 2019;

a ` 1,277/(1,338) increase/(decrease) in the Company’s hedging reserve and a ` 843/(749) increase/(decrease) in the Company’s net profi t from such contracts, as at 31 March 2018; The following table analyses foreign currency risk from non-derivative fi nancial instruments as at 31 March 2019: (All fi gures in equivalent Indian Rupees millions) Particulars United States dollars Euros Russian roubles Others (1) Total Assets Cash and cash equivalents 78 19 6 19 122 Trade receivables 27,159 823 5,525 1,225 34,732 Other fi nancial assets 415 17 3 124 559 Total 27,652 859 5,534 1,368 35,413 Liabilities Trade payables 1,704 753 - 132 2,589 Long-term borrowings 3,454 - - - 3,454 Short-term borrowings 5,463 - - 5,463 Other fi nancial liabilities 3,915 86 1,146 221 5,368 Total 14,536 839 1,146 353 16,874 The following table analyses foreign currency risk from non-derivative fi nancial instruments as at 31 March 2018: (All fi gures in equivalent Indian Rupees millions) Particulars United States dollars Euros Russian roubles Others (1) Total Assets Cash and cash equivalents 35 9 - 29 73 Trade receivables 30,089 441 6,541 2,597 39,668 Other fi nancial assets 357 102 10 1,669 2,138 Total 30,481 552 6,551 4,295 41,879 Liabilities Trade payables 1,664 925 - 193 2,782 Long-term Borrowings 4,880 - - - 4,880 Short-term borrowings 17,923 - 1,585 - 19,508 Other fi nancial liabilities 2,449 266 2,505 102 5,322 Total 26,916 1,191 4,090 295 32,492 (1) Others include currencies such as Mexican pesos, U.K pounds sterling and Swiss francs. For the years ended 31 March 2019 and 31 March 2018, every 10% depreciation/appreciation in the exchange rate between the Indian rupee and the respective currencies for the above mentioned fi nancial assets/liabilities would aff ect the Company’s net profi t by ` 1,854 and ` 939, respectively. Interest rate risk As of 31 March 2019 and 31 March 2018, the Company had ` 10,650 of loans carrying a fl oating interest rate of 1 Month LIBOR plus 25 bps to 1 Month LIBOR plus 82.7 bps and ` 22,811 of loans carrying a fl oating interest rate of 1 Month LIBOR minus 30 bps to 1 Month LIBOR plus 82.7 bps. These loans expose the Company to risk of changes in interest rates. The Company’s treasury department monitors the interest rate movement and manages the interest rate risk based on its policies, which include entering into interest rate swaps as considered necessary. For details of the Company’s short-term and long-term loans and borrowings, including interest rate profi les, refer to note 2.8A and 2.8B of these fi nancial statements. For the years ended 31 March 2019 and 31 March 2018, every 10% increase or decrease in the fl oating interest rate component (i.e., LIBOR) applicable to its loans and borrowings would aff ect the Company’s net profi t by ` 27 and ` 42, respectively. The carrying value of the Company’s borrowings, interest component of which designated in a cash fl ow hedge was ` Nil as of 31 March 2019. The Company’s investments in term deposits (i.e, certifi cates of deposit) with banks and short-term liquid mutual funds are for short durations, and therefore do not expose the Company to signifi cant interest rates risk.

164 Company Overview Statutory Reports Financial Statements Annual Report 2018-19

Standalone NOTES TO FINANCIAL STATEMENTS

(All amounts in Indian Rupees millions, except share data and where otherwise stated)

2.29 Financial risk management (continued) Commodity rate risk Exposure to market risk with respect to commodity prices primarily arises from the Company’s purchases and sales of active pharmaceutical ingredients, including the raw material components for such active pharmaceutical ingredients. These are commodity products, whose prices may fl uctuate signifi cantly over short periods of time. The prices of the Company’s raw materials generally fl uctuate in line with commodity cycles, although the prices of raw materials used in the Company’s active pharmaceutical ingredients business are generally more volatile. Cost of raw materials forms the largest portion of the Company’s operating expenses. Commodity price risk exposure is evaluated and managed through operating procedures and sourcing policies. As of 31 March 2019, the Company had not entered into any material derivative contracts to hedge exposure to fl uctuations in commodity prices. b) Credit risk Credit risk is the risk of fi nancial loss to the Company if a customer or counterparty to a fi nancial instrument fails to meet its contractual obligations, and arises principally from the Company’s receivables from customers and investment securities. Credit risk is managed through credit approvals, establishing credit limits and continuously monitoring the creditworthiness of customers to which the Company grants credit terms in the normal course of business. The Company establishes an allowance for credit losses and impairment that represents its estimate of expected losses in respect of trade and other receivables and investments. Trade and other receivables The Company’s exposure to credit risk is infl uenced mainly by the individual characteristics of each customer. The demographics of the customer, including the default risk of the industry and country in which the customer operates, also has an infl uence on credit risk assessment. Credit risk is managed through credit approvals, establishing credit limits and continuously monitoring the creditworthiness of customers to which the Company grants credit terms in the normal course of business. Investments The Company limits its exposure to credit risk by generally investing in liquid securities and only with counterparties that have a good credit rating. The Company does not expect any losses from non-performance by these counter-parties, and does not have any signifi cant concentration of exposures to specifi c industry sectors or specifi c country risks. Details of fi nancial assets – not due, past due and impaired None of the Company’s cash equivalents, including term deposits (i.e., certifi cates of deposit) with banks, were past due or impaired as at 31 March 2019. The Company’s credit period for trade receivables payable by its customers generally ranges from 20 - 180 days. The ageing of trade receivables is given below: As at As at Particulars 31 March 2019 31 March 2018 Neither past due nor impaired 30,349 35,390 Past due but not impaired Less than 365 days 7,019 6,817 More than 365 days 389 3,943 Total 37,757 46,150 Less: Allowance for credit losses (467) (3,943) Net trade receivables 37,290 42,207

Refer note 2.4 B of these ﬁ nancial statements for the activity in the allowance for credit losses. Loans and advances Loans and advances are predominantly given to subsidiaries for the purpose of working capital and other business requirements.

Refer note 2.4 C of these fi nancial statements for the activity in the allowance for doubtful advances. Other than trade receivables and loans and advances, the Company has no signifi cant class of fi nancial assets that is past due but not impaired. c) Liquidity risk Liquidity risk is the risk that the Company will not be able to meet its fi nancial obligations as they become due. The Company manages its liquidity risk by ensuring, as far as possible, that it will always have suffi cient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risk to the Company’s reputation. As at 31 March 2019 and 31 March 2018, the Company had uncommitted lines of credit from banks of ` 33,327 and ` 14,209 respectively.

Building a winning future 165 Dr. Reddy’s Laboratories Limited

NOTES TO FINANCIAL STATEMENTS

(All amounts in Indian Rupees millions, except share data and where otherwise stated)

2.29 Financial risk management (continued) As at 31 March 2019, the Company had working capital of ` 58,539, including cash and cash equivalents of ` 1,132, investments in term deposits with banks (i.e., deposits having original maturities of more than 3 months) of ` 513, investments in bonds of ` 5,272, investment in commercial paper of ` 459 and investments measured at fair value through profi t and loss (“FVTPL”) of ` 14,900. As at 31 March 2018, the Company had working capital of ` 43,186, including cash and cash equivalents of ` 1,207, investments in bonds of ` 3,279, investment in commercial paper of ` 232 and investments measured at fair value through profi t and loss (“FVTPL”) of ` 13,317. The table below provides details regarding the contractual maturities of signifi cant fi nancial liabilities (other than long-term loans, borrowings and obligations under fi nance leases, which have been disclosed in note 2.8 A to these fi nancial statements) as at 31 March 2019: Particulars 2020 2021 2022 2023 Thereafter Total Trade payables 10,316----10,316 Short-term borrowings 5,463----5,463 Other fi nancial liabilities 10,160----10,160 Derivative instruments – liabilities 45----45 The table below provides details regarding the contractual maturities of signifi cant fi nancial liabilities (other than long-term loans, borrowings and obligations under fi nance leases, which have been disclosed in note 2.8 A to these fi nancial statements) as at 31 March 2018: Particulars 2019 2020 2021 2022 Thereafter Total Trade payables 10,610----10,610 Short-term borrowings 21,008----21,008 Other fi nancial liabilities 11,386----11,386 Derivative instruments – liabilities 85----85

2.30 Contingent liabilities and commitments A. Contingent liabilities (claims against the Company not acknowledged as debts) The Company is involved in disputes, lawsuits, claims, governmental and/or regulatory inspections, inquiries, investigations and proceedings, including patent and commercial matters that arise from time to time in the ordinary course of business. The more signifi cant matters are discussed below. Most of the claims involve complex issues. Often, these issues are subject to uncertainties and therefore the probability of a loss, if any, being sustained and an estimate of the amount of any loss is diffi cult to ascertain. Consequently, for a majority of these claims, it is not possible to make a reasonable estimate of the expected fi nancial eff ect, if any, that will result from ultimate resolution of the proceedings. This is due to a number of factors, including: the stage of the proceedings (in many cases trial dates have not been set) and the overall length and extent of pre-trial discovery; the entitlement of the parties to an action to appeal a decision; clarity as to theories of liability; damages and governing law; uncertainties in timing of litigation; and the possible need for further legal proceedings to establish the appropriate amount of damages, if any. In these cases, the Company discloses information with respect to the nature and facts of the case. The Company also believes that disclosure of the amount sought by plaintiff s, if that is known, would not be meaningful with respect to those legal proceedings. Although there can be no assurance regarding the outcome of any of the legal proceedings or investigations referred to in this note, the Company does not expect them to have a materially adverse eff ect on its nancialfi position, as it believes that the likelihood of loss in excess of amounts accrued (if any) is not probable. However, if one or more of such proceedings were to result in judgements against the Company, such judgements could be material to its results of operations in a given period. (i) Product and patent related matters Matters relating to National Pharmaceutical Pricing Authority Norfl oxacin, India litigation The Company manufactures and distributes Norfl oxacin, a formulations product, and in limited quantities, the active pharmaceutical ingredient norfl oxacin. Under the Drugs Prices Control Order (the “DPCO”), the National Pharmaceutical Pricing Authority (the “NPPA”) established by the Government of India had the authority to designate a pharmaceutical product as a “specifi ed product” and fi x the maximum selling price for such product. In 1995, the NPPA issued a notifi cation and designated Norfl oxacin as a “specifi ed product” and fi xed the maximum selling price. In 1996, the Company fi led a statutory Form III before the NPPA for the upward revision of the maximum selling price and a writ petition in the Andhra Pradesh High Court (the “High Court”) challenging the validity of the designation on the grounds that the applicable rules of the DPCO were not complied with while fi xing the maximum selling price. The High Court had previously granted an interim order in favour of the Company; however it subsequently dismissed the case in April 2004. The Company fi led a review petition in the High Court in April 2004 which was also dismissed by the High Court in October 2004. Subsequently, the Company appealed to the Supreme Court of India, New Delhi (the “Supreme Court”) by fi ling a Special Leave Petition. During the year ended 31 March 2006, the Company received a notice from the NPPA demanding the recovery of the price charged by the Company for sales of Norfl oxacin in excess of the maximum selling price fi xed by the NPPA, which was ` 285 including interest.

166 Company Overview Statutory Reports Financial Statements Annual Report 2018-19

Standalone NOTES TO FINANCIAL STATEMENTS

(All amounts in Indian Rupees millions, except share data and where otherwise stated)

2.30 Contingent liabilities and commitments (continued) The Company fi led a writ petition in the High Court challenging this demand order. The High Court admitted the writ petition and granted an interim order, directing the Company to deposit 50% of the principal amount claimed by the NPPA, which was ` 77. The Company deposited this amount with the NPPA in November 2005. In February 2008, the High Court directed the Company to deposit an additional amount of ` 30, which was deposited by the Company in March 2008. In November 2010, the High Court allowed the Company’s application to include additional legal grounds that the Company believed strengthened its defense against the demand. For example, the Company added as grounds that trade margins should not be included in the computation of amounts overcharged, and that it was necessary for the NPPA to set the active pharmaceutical ingredient price before the process of determining the ceiling on the formulation price. In October 2013, the Company fi led an additional writ petition before the Supreme Court challenging the inclusion of Norfl oxacin as a “specifi ed product” under the DPCO. In January 2015, the NPPA fi led a counter affi davit stating that the inclusion of Norfl oxacin was based upon the recommendation of a committee consisting of experts in the fi eld. On 20 July 2016, the Supreme Court remanded the matters concerning the inclusion of Norfl oxacin as a “specifi ed product” under the DPCO back to the High Court for further proceedings. During the three months ended 30 September 2016, the Supreme Court dismissed the Special Leave Petition pertaining to the fi xing of prices for Norfl oxacin formulations. During the three months ended 31 December 2016, a writ petition pertaining to Norfl oxacin was fi led by the Company with the Delhi High Court. The matter is adjourned to 11 September 2019 for hearing. Based on its best estimate, the Company has recorded a provision for potential liability for sale proceeds in excess of the notifi ed selling prices, including the interest thereon, and believes that the likelihood of any further liability that may arise on account of penalties pursuant to this litigation is not probable. Litigation relating to Cardiovascular and Anti-diabetic formulations In July 2014, the NPPA, pursuant to the guidelines issued in May 2014 and the powers granted by the Government of India under the Drugs (Price Control) Order, 2013, issued certain notifi cations regulating the prices for 108 formulations in the cardiovascular and anti-diabetic therapeutic areas. The Indian Pharmaceutical Alliance (“IPA”), in which the Company is a member, fi led a writ petition in the Bombay High Court challenging the notifi cations issued by the NPPA on the grounds that they were ultra vires, ex facie and ab initio void. The Bombay High Court issued an order to stay the writ in July 2014. On 26 September 2016, the Bombay High Court dismissed the writ petition fi led by the IPA and upheld the validity of the notifi cations/orders passed by the NPPA in July 2014. Further, on 25 October 2016, the IPA fi led a Special Leave Petition with the Supreme Court, which was dismissed by the Supreme Court. During the three months ended 31 December 2016, the NPPA issued show-cause notices relating to allegations that the Company exceeded the notifi ed maximum prices for 11 of its products. The Company has responded to these notices. On 20 March 2017, the IPA fi led an application before the Bombay High Court for the recall of the judgement of the Bombay High Court dated 26 September 2016. This recall application fi led by the IPA was dismissed by the Bombay High Court on 4 October 2017. Further, on 13 December 2017, the IPA fi led a Special Leave Petition, with the Supreme Court for the recall of the judgement of the Bombay High Court dated 4 October 2017, which was dismissed by Supreme Court on 10 January 2018. During the three months ended 31 March 2017, the NPPA issued notices to the Company demanding payments relating to the foregoing products for the allegedly overcharged amounts, along with interest. On 13 July 2017, in response to a writ petition which the Company had fi led, the Delhi High Court set aside all the demand notices of the NPPA and directed the NPPA to provide a personal hearing to the Company and pass a speaking order. A personal hearing in this regard was held on 21 July 2017. On 27 July 2017, the NPPA passed a speaking order along with the demand notice directing the Company to pay an amount of ` 776. On 3 August 2017, the Company fi led a writ petition challenging the speaking order and the demand notice. Upon hearing the matter on 8 August 2017, the Delhi High Court stayed the operation of the demand order and directed the Company to deposit ` 100 and furnish a bank guarantee for ` 676. Pursuant to the order, the Company deposited ` 100 on 13 September 2017 and submitted a bank guarantee of ` 676 dated 15 September 2017 to the Registrar General, Delhi High Court. On 22 November 2017, the Delhi High Court directed the Union of India to fi le a fi nal counter affi davit within six weeks, subsequent to which the Company could fi le a rejoinder. On 10 May 2018, the counter affi davit was fi led by the Union of India. The Company subsequently fi led a rejoinder and both were taken on record by the Delhi High Court. The matter has been adjourned to 22 July 2019 for hearing. Based on its best estimate, the Company has recorded a provision of ` 342 under “selling and other expenses” as a potential liability for sale proceeds in excess of the notifi ed selling prices, including the interest thereon, and believes that the likelihood of any further liability that may arise on account of penalties pursuant to this litigation is not probable. However, if the Company is unsuccessful in such litigation, it will be required to remit the sale proceeds in excess of the notifi ed selling prices to the Government of India with interest and could potentially include penalties, which amounts are not readily ascertainable.

Building a winning future 167 Dr. Reddy’s Laboratories Limited

NOTES TO FINANCIAL STATEMENTS

(All amounts in Indian Rupees millions, except share data and where otherwise stated)

2.30 Contingent liabilities and commitments (continued) Class Action and Other Civil Litigation on Pricing/Reimbursement Matters On 30 December 2015 and on 4 February 2016, respectively, a class action complaint (the “First Pricing Complaint”) and another complaint (not a class action) (the “Second Pricing Complaint”) were fi led against the Company and eighteen other pharmaceutical defendants in State Court in the Commonwealth of Pennsylvania. In these actions, the class action plaintiff s allege that the Company and other defendants, individually or in some cases in concert with one another, have engaged in pricing and price reporting practices in violation of various Pennsylvania state laws. More specifi cally, the plaintiff s allege that: (1) the Company provided false and misleading pricing information to third party drug compendia companies for the Company’s generic drugs, and such information was relied upon by private third party payers that reimbursed for drugs sold by the Company in the United States, and (2) the Company acted in concert with certain other defendants to unfairly raise the prices of generic divalproex sodium ER (bottle of 80, 500 mg tablets ER 24H) and generic pravastatin sodium (bottle of 500, 10 mg tablets). The First Pricing Complaint was removed to the U.S. District Court for the Eastern District of Pennsylvania (the “E.D.P.A. Federal Court”) and, pending the outcome of the First Pricing Complaint, the Second Pricing Complaint was stayed. On 25 September 2017, the E.D.P.A. Federal Court dismissed all the claims of the plaintiff s in the First Pricing Complaint and denied leave to amend such complaint as futile. Subsequent to this decision, the plaintiff s right to appeal the dismissal of the First Pricing Complaint expired. Further, on 17 November 2016, certain class action complaints were fi led against the Company and a number of other pharmaceutical companies as defendants in the E.D.P.A Federal Court. Subsequently, these complaints were consolidated into one amended complaint as part of a multi-district, multi-product litigation pending with the E.D.P.A. Federal Court. These complaints allege that the Company and the other named defendants have engaged in a conspiracy to fi x prices and to allocate bids and customers in the sale of pravastatin sodium tablets and divalproex sodium extended-release tablets in the United States. In March 2017, plaintiff s agreed by stipulation to dismiss Dr. Reddy’s Laboratories Inc. and Dr. Reddy’s Laboratories Limited from the actions related to pravastatin sodium tablets without prejudice. The Company denies any wrong doing and intends to vigorously defend against these allegations. In response to the consolidated new complaint, the Company fi led a motion to dismiss in October 2017. The plaintiff s fi led opposition to the motion to dismiss in December 2017 and a reply was fi led by the Company in January 2018. In October 2018, the Court denied the motion to dismiss on the grounds that the allegations pled leave open the possibility of conspiracy. Therefore, discovery will proceed to look into this possibility. The Company believes that the asserted claims are without merit and intends to vigorously defend itself against the allegations. Also any liability that may arise on account of these claims is unascertainable. Accordingly, no provision was made in the fi nancial statements of the Company. (ii) Civil litigation with Mezzion On 13 January 2017, Mezzion Pharma Co. Ltd. and Mezzion International LLC (collectively, “Mezzion”) fi led a complaint in the New Jersey Superior Court against the Company and its wholly owned subsidiary in the United States. The complaint pertains to the production and supply of the active pharmaceutical ingredient (“API”) for udenafi l (a patented compound) and an udenafi l fi nished dosage product during a period from calendar years 2007 to 2015. Mezzion alleges that the Company failed to comply with the U.S. FDA’s current Good Manufacturing Practices (“cGMP”) at the time of manufacture of the API and fi nished dosage forms of udenafi l and, consequently, that this resulted in a delay in the fi ling of a NDA for the product by Mezzion. In this regard, the Company fi led a motion to dismiss Mezzion’s complaint on the technical grounds that the Court lacks jurisdiction over the Company. In January 2018, the Court denied the Company’s motion to dismiss the complaint on the jurisdictional matter. The Company’s interlocutory appeal of the said denial, was also denied. The Commercial Court, Hyderabad has accepted the request of the Company to withdraw the suit, in view of the Court granting the Company’s motion of Dr. Reddy’s to fi le a Counterclaim in U.S. Action. The Company denies any wrongdoing or liability in this regard, and intends to vigorously defend against the claims asserted in Mezzion’s complaint. Any liability that may arise on account of this claim is unascertainable. Accordingly, no provision was made in the fi nancial statements of the Company. (iii) Securities Class Action Litigation On 25 August 2017, a securities class action lawsuit was fi led against the Company, its Chief Executive Offi cer, and its Chief Financial Offi cer in the United States District Court for the District of New Jersey. The Company’s Co-Chairman, its Chief Operating Offi cer, and Dr. Reddy’s Laboratories, Inc., were also subsequently named as defendants in the case. The operative complaint alleges that the Company made false or misleading statements or omissions in its public fi lings, in violation of U.S. federal securities laws, and that the Company’s share price dropped and its investors were aff ected. On 9 May 2018, the Company and other defendants ledfi a motion to dismiss the complaint in the United States District Court for the District of New Jersey. On 25 June 2018, the plaintiff s fi led an opposition to the motion to dismiss and, on 25 July 2018, a further reply in support of the motion to dismiss was fi led by the Company. In August 2018, oral argument on the motion to dismiss was heard by the Court.

168 Company Overview Statutory Reports Financial Statements Annual Report 2018-19

Standalone NOTES TO FINANCIAL STATEMENTS

(All amounts in Indian Rupees millions, except share data and where otherwise stated)

2.30 Contingent liabilities and commitments (continued) On 21 March 2019, the District Court issued its decision granting in part and denying in part the motion to dismiss. Pursuant to that decision, the Court dismissed the plaintiff ’s claims with respect to seventeen out of the twenty two alleged misstatements and omissions. The Company believes that the asserted claims are without merit and intends to vigorously defend itself against the allegations. Any liability that may arise on account of this claim is unascertainable. Accordingly, no provision was made in the fi nancial statements of the Company. (iv) Glenmark Litigation In November 2017, the Company received a letter from Glenmark Farmaceutica Ltda and Glenmark Pharmaceuticals Limited (collectively “Glenmark”), for invocation of arbitration under a distribution agreement and a deed of assignment relating to a product between the Company and Glenmark. Glenmark alleged that the non-supply of the product by the Company severely aff ected the value of the intellectual Property and goodwill and asserted claims to recover the loss along with interest and penalties from the Company. In March 2018, an arbitrator was appointed by the Supreme Court of India at Glenmark’s request. In July 2018, Glenmark fi led a claim statement against the Company and in September 2018, the Company fi led a reply against the claim along with a counter claim. Glenmark fi led a reply to the counter claim of the Company in November 2018 and the issues were fi nalised, inspection of documents along with the fi ling of the statement of Admissions and Denials was completed in December 2018. The Company was asked to submit the list of witnesses by 5 March 2019. Affi davits in chief examination were fi led by witnesses of the Company and Glenmark. The cross examination of the witnesses of Glenmark commenced and is anticipated to continue until July 2019. The Company believes that the asserted claims are without merit and intends to vigorously defend itself against the allegations. Any liability that may arise on account of these claims is unascertainable. No provision was made in the fi nancial statements of the Company. (v) Environmental matters Land pollution The Indian Council for Environmental Legal Action fi led a writ in 1989 under Article 32 of the Constitution of India against the Union of India and others in the Supreme Court of India for the safety of people living in the Patancheru and Bollarum areas of Medak district of the then existing undivided state of Andhra Pradesh. The Company has been named in the list of polluting industries. In 1996, the Andhra Pradesh District Judge proposed that the polluting industries compensate farmers in the Patancheru, Bollarum and Jeedimetla areas for discharging effl uents which damaged the farmers’ agricultural land. The compensation was fi xed at ` 0.0013 per acre for dry land and ` 0.0017 per acre for wet land. Accordingly, the Company has paid a total compensation of ` 3. The Andhra Pradesh High Court disposed of the writ petition on 12 February 2013 and transferred the case to the National Green Tribunal (“NGT”), Chennai, India. The interim orders passed in the writ petitions will continue until the matter is decided by the NGT. The NGT has, through its order dated 30 October 2015, constituted a Fact Finding Committee. The NGT has also permitted the alleged polluting industries to appoint a person on their behalf in the Fact Finding Committee. However, the Company along with the alleged polluting industries has challenged the constitution and composition of the Fact Finding Committee. The NGT has directed that until all the applications challenging the constitution and composition of the Fact Finding Committee are disposed of, the Fact Finding Committee shall not commence its operation. The NGT, Chennai in a judgement dated 24 October 2017, disposed of the matter. The Bulk Drug Manufacturers Association of India (“BDMAI”), in which the Company is a member, subsequently fi led a review petition against the judgement on various aspects. The NGT, Delhi, in a judgement dated 16 November 2017, in another case in which the Company is not a party, stated that the moratorium imposed in the Patancheru and Bollaram areas shall continue until the Ministry of Environment, Forest and Climate Change passes an order keeping in view the needs of the environment and public health. The Company fi led an appeal challenging this judgement. The High Court of Hyderabad heard the Company’s appeal challenging this judgement in July 2018 and directed the respondents to fi le their response within a period of four weeks. During the three months ended 30 September 2018, the respondents fi led counter affi davits and the matter has now been adjourned for fi nal hearing. The appeal came up for hearing before the High Court of Hyderabad on 25 October 2018 and has been adjourned for further hearing. On 24 April 2019, based upon the judgement of the NGT, Chennai dated 24 October 2017, the Government of Telangana has issued GO.Ms. No 24 of 2019 that allows for expansion of production of all kinds of existing industrial units located within the stretch of Patancheru – Bollaram upon depositing an amount equivalent to 1% of the annual turnover of the respective unit for the concluded fi nancial year i.e., 31 March 2019. Accordingly, the Company made a provision of ` 29, representing the probable cost of expansion, during the year ended 31 March 2019. The Company believes that any additional liability that might arise in this regard is not probable. Accordingly, no provision relating to these claims has been made in the fi nancial statements.

Building a winning future 169 Dr. Reddy’s Laboratories Limited

NOTES TO FINANCIAL STATEMENTS

(All amounts in Indian Rupees millions, except share data and where otherwise stated)

2.30 Contingent liabilities and commitments (continued) Water pollution and air pollution During the year ended 31 March 2012, the Company, along with 14 other companies, received a notice from the Andhra Pradesh Pollution Control Board (the “APP Control Board”) to show cause as to why action should not be initiated against them for violations under the Indian Water Pollution Act and the Indian Air Pollution Act. Furthermore, the APP Control Board issued orders to the Company to (i) stop production of all new products at the Company’s manufacturing facilities in Hyderabad, India without obtaining a “Consent for Establishment”, (ii) cease manufacturing products at such facilities in excess of certain quantities specifi ed by the APP Control Board and (iii) furnish a bank guarantee to assure compliance with the APP Control Board’s orders. The Company appealed the APP Control Board orders to the Andhra Pradesh Pollution Appellate Board (the “APP Appellate Board”). The APP Appellate Board, on the basis of a report of a fact-fi nding advisory committee, recommended to the Andhra Pradesh Government to allow expansion of units fully equipped with Zero-Liquid Discharge (“ZLD”) facilities and otherwise found no fault with the Company (on certain conditions). The APP Appellate Board’s decision was challenged by one of the petitioners in the National Green Tribunal and the matter is currently pending before it. The challenge to the APP Appellate Board’s decision is transferred to the NGT, Delhi for a fi nal hearing, the date for which has not yet been notifi ed. No provision relating to these claims has been made in the fi nancial statements. Separately, the Andhra Pradesh Government, following recommendations of the APP Appellate Board, published a notifi cation in July 2013 that allowed expansion of production of all types of existing bulk drug and bulk drug intermediate manufacturing units subject to the installation of ZLD facilities and the outcome of cases pending in the National Green Tribunal. Importantly, the notifi cation directed pollution load of industrial units to be assessed at the point of discharge (if any) as opposed to point of generation. In September 2013, the Ministry of Environment and Forests, based on the revised Comprehensive Environment Pollution Index, issued a notifi cation that re-imposed a moratorium on expansion of industries in certain areas where some of the Company’s manufacturing facilities are located. This notifi cation overrides the Andhra Pradesh Government’s notifi cation that conditionally permitted expansion. (vi) Indirect taxes related matters Distribution of input service tax credits The Central Excise Authorities have issued various demand notices to the Company objecting to the Company’s methodology of distributing input service tax credits claimed for one of the Company’s facilities. The below table shows the details of each such demand notice, the amount demanded and the current status of the Company’s responsive actions. Period covered under the notice Amount demanded Status March 2008 to September 2009 ` 102 plus penalties of ` 102 and interest The Company has fi led an appeal before the CESTAT October 2009 to March 2011 ` 125 plus penalties of ` 100 and interest The Company has fi led an appeal before the CESTAT April 2011 to March 2012 ` 51 plus penalties of ` 5 and interest The Company has fi led an appeal before the CESTAT April 2012 to March 2013 ` 54 plus penalties of ` 5 and interest The Company has fi led an appeal before the CESTAT April 2013 to March 2014 ` 69 plus penalties of ` 6 and interest The Company has fi led an appeal before the CESTAT April 2014 to March 2015 ` 108 plus penalties of ` 11 and interest The Company has fi led an appeal before the CESTAT April 2015 to March 2016 ` 157 plus interest and penalties The Company has submitted reply hearing awaited April 2016 to June 2017 ` 307 plus interest and penalties The Company is in the process of responding to the notice The Company believes that the likelihood of any liability that may arise on account of the allegedly inappropriate distribution of input service tax credits is not probable. Accordingly, no provision relating to these claims has been made in these fi nancial statements as of 31 March 2019. Value Added Tax (“VAT”) matter The Company has received various demand notices from the Government of Telangana’s Commercial Taxes Department objecting to the Company’s methodology of calculation of VAT input credit. The below table shows the details of each of such demand notice, the amount demanded and the current status of the Company’s responsive actions. Period covered under the notice Amount demanded Status The State VAT Appellate Tribunal has remanded the matter to the April 2006 to March 2009 ` 66 plus 10% penalty assessing authority to re-compute the eligibility and penalty orders are set-aside The Company has fi led an appeal before the Sales Tax Appellate Tribunal. The matter was remanded to the original adjudicating April 2009 to March 2011 ` 59 plus 10% penalty authority with a direction to re-calculate the eligibility for the year ended 31 March 2010. The Appellate Deputy Commissioner issued an order partially in April 2011 to March 2013 ` 16 plus 10% penalty favour of the Company The Company has recorded a provision of ` 51 as of 31 March 2019, and believes that the likelihood of any further liability that may arise on account of the allegedly inappropriate claims to VAT credits is not probable.

170 Company Overview Statutory Reports Financial Statements Annual Report 2018-19

Standalone NOTES TO FINANCIAL STATEMENTS

(All amounts in Indian Rupees millions, except share data and where otherwise stated)

2.30 Contingent liabilities and commitments (continued) Others Additionally, the Company is in receipt of various demand notices from the Indian Sales and Service Tax authorities. The disputed amount is ` 297. The Company has responded to such demand notices and believes that the chances of any liability arising from such notices are less than probable. Accordingly, no provision is made in these fi nancial statements as of 31 March 2019. (vii) Fuel Surcharge Adjustments The Andhra Pradesh Electricity Regulatory Commission (the “APERC”) passed various orders approving the levy of Fuel Surcharge Adjustment (“FSA”) charges for the period from 1 April 2008 to 31 March 2013 by power distribution companies from all the consumers of electricity in the then existing undivided state of Andhra Pradesh, India where the Company’s headquarters and principal manufacturing facilities are located. Separate writ petitions fi led by the Company for various periods, challenging and questioning the validity and legality of this levy of FSA charges by the APERC, are pending before the High Court of Andhra Pradesh and the Supreme Court of India. The total amount approved by APERC for collection by the power distribution companies from the Company in respect of FSA charges for the period from 1 April 2008 to 31 March 2013 is ` 482. After taking into account all of the available information and legal provisions, the Company has recorded ` 219 as the potential liability towards FSA charges. However, the Company has paid, under protest, an amount of ` 354 as demanded by the power distribution companies as part of monthly electricity bills. The Company remains exposed to additional fi nancial liability should the orders passed by the APERC be upheld by the Courts. During the three months ended 30 June 2016, the Supreme Court of India dismissed the Special Leave Petition fi led by the Company in this regard for the period from 1 April 2012 to 31 March 2013. As a result, for the quarter ended 30 June 2016, the Company recognised an expenditure of ` 55 (by de-recognising the payments under protest) representing the FSA charges for the period from 1 April 2012 to 31 March 2013. (viii) Direct taxes related matters The Company is contesting various disallowances by the Indian Income Tax authorities. The associated tax impact is ` 2,008. The Company believes that the chances of an unfavourable outcome in each of such disallowances are less than probable and, accordingly, no provision is made in these fi nancial statements as of 31 March 2019. The Company believes that possibility of any liability that may arise on account of this litigation is not probable. Accordingly, no provision has been made in these fi nancial statements as of 31 March 2019. (ix) Others On 28 February 2019, the Supreme Court of India issued a judgement which provided further guidance for companies in determining which components of their employees’ compensation are subject to statutory withholding obligations, and matching employer contribution obligations, for Provident Fund contributions under Indian law. There are numerous interpretative issues relating to this judgement. However, the Company has made a provision on a prospective basis from the date of the Supreme Court’s judgement. The Company will evaluate the same and update its provision, if any on receiving further clarity on the subject. Additionally, the Company is involved in other disputes, lawsuits, claims, governmental and/or regulatory inspections, inquiries, investigations and proceedings, including patent and commercial matters that arise from time to time in the ordinary course of business. Except as discussed above, the Company does not believe that there are any such contingent liabilities that are expected to have any material adverse eff ect on its fi nancial statements. B. Commitments As at As at Particulars 31 March 2019 31 March 2018 Estimated amounts of contracts remaining to be executed on capital account and not provided 2,423 3,477 for (net of advances)

2.31 Dividend remittance in foreign currency The Company does not make any direct remittances of dividends in foreign currencies to American Depository Receipts (ADRs) holders. The Company remits the equivalent of the dividends payable to the ADR holders in Indian Rupees to the custodian, which is the registered shareholder on record for all owners of the Company’s ADRs. The custodian purchases the foreign currencies and remits it to the depository bank which inturn remits the dividends to the ADR holders. 2.32 Segment reporting In accordance with Ind AS 108, Operating Segments, segment information has been given in the consolidated ﬁ nancial statements of Dr. Reddy’s Laboratories Limited and therefore no separate disclosure on segment information is given in these ﬁ nancial statements.

Building a winning future 171 Dr. Reddy’s Laboratories Limited

NOTES TO FINANCIAL STATEMENTS

(All amounts in Indian Rupees millions, except share data and where otherwise stated)

2.33 Receipt of warning letter from the U.S. FDA The Company received a warning letter dated 5 November 2015 from the U.S. FDA relating to current Good Manufacturing Practices (“cGMPs”) deviations at its active pharmaceutical ingredient (“API”) manufacturing facilities at Srikakulam, Andhra Pradesh and Miryalaguda, Telangana, as well as violations at its oncology formulation manufacturing facility at Duvvada, Visakhapatnam, Andhra Pradesh. The contents of the warning letter emanated from Form 483 observations that followed inspections of these sites by the U.S. FDA in November 2014, January 2015 and February-March 2015. Tabulated below are the further updates with respect to the aforementioned sites: Month and year Update The U.S. FDA completed the re-inspection of the aforementioned manufacturing facilities. During the re-inspections, the U.S. FDA February, March issued three observations with respect to the API manufacturing facility at Miryalaguda, two observations with respect to the API and April 2017 manufacturing facility at Srikakulam and thirteen observations with respect to the Company’s oncology formulation manufacturing facility at Duvvada. The U.S. FDA issued an Establishment Inspection Report (“EIR”) which indicated that the inspection of the Company’s API June 2017 manufacturing facility at Miryalaguda was successfully closed. The Company received EIRs from the U.S. FDA for the oncology manufacturing facility at Duvvada which indicated that the November 2017 inspection status of this facility remains unchanged. The Company received EIRs from the U.S.FDA for API manufacturing facility at Srikakulam which indicated that the inspection February 2018 status of this facility remains unchanged. June 2018 The Company requested the U.S. FDA to schedule a re-inspection of the oncology formulation manufacturing facility at Duvvada. The re-inspection was completed for the oncology formulation manufacturing facility at Duvvada and the U.S. FDA issued a October 2018 Form 483 with eight observations. The Company responded to the observations identiﬁ ed by the U.S. FDA for the oncology formulation manufacturing facility at November 2018 Duvvada in October 2018. February 2019 The U.S. FDA issued an EIR indicating successful closure of the audit of the oncology formulation manufacturing facility at Duvvada.

With respect to the API manufacturing facility at Srikakulam, subsequent to the receipt of EIR in February, the Company was asked, in October 2018, to carry out certain detailed investigations and analyses and the Company submitted the results of the investigations and analyses. As part of the review of the response by the U.S. FDA, certain additional follow on queries have been received by the Company. The Company responded to all queries in January 2019 to the U.S. FDA. In February 2019, the Company received certain follow on questions from the U. S. FDA and the Company responded in March 2019. Based on the discussion with U.S. FDA, a meeting would be conducted prior to re-inspection of the site. Inspection of other facilities Tabulated below are the details of the U.S. FDA inspections carried out during the fi nancial year ended 31 March 2019: Month and year Unit Details of observations No observations were noted. An EIR indicating the closure of audit for this facility was issued June 2018 API Srikakulam Plant (SEZ) by the U.S FDA in August 2018. No observations were noted. An EIR indicating the closure of audit for this facility was issued November 2018 Srikakulam Plant (SEZ) Unit II by the U.S FDA in February 2019. January-April Four observations were noted. The Company responded to the observations and an EIR Srikakulam Plant (SEZ) Unit I 2019 indicating the closure of audit for this facility was issued by the U.S. FDA in April 2019. API manufacturing Plant at One observation was noted. The Company responded to the observation identifi ed by the January 2019 Miryalaguda, Nalgonda U.S. FDA, and awaiting to receive the EIR from agency. Eleven observations were noted. The Company responded to the observations in January January-April Formulations manufacturing 2019. In April 2019, based on the Company’s responses and follow-up actions, the U.S. FDA 2019 facility at Bachupally, Hyderabad has determined the inspection classifi cation of this facility as Voluntary Action Initiated (“VAT”).

2.34 Capital management For the purposes of the Company’s capital management, capital includes issued capital and all other equity reserves. The primary objective of the Company’s capital management is to maximise shareholder value. The Company manages it’s capital structure and makes adjustments in the light of changes in economic environment and the requirements of the ﬁ nancial covenants. The Company monitors capital using gearing ratio, which is total debt divided by total capital plus debt. The capital gearing ratio as on 31 March 2019 and 31 March 2018 was 8% and 18%, respectively.

172 Company Overview Statutory Reports Financial Statements Annual Report 2018-19

Standalone NOTES TO FINANCIAL STATEMENTS

(All amounts in Indian Rupees millions, except share data and where otherwise stated)

2.35 Property, plant and equipment and intangible assets used for research and development (included in note 2.1 and note 2.3) Gross carrying value Accumulated depreciation/amortisation Net carrying value Particulars As at As at As at For the year Disposals As at As at As at Additions (a) Disposals (b) 1 April 2018 31 March 2019 1 April 2018 (a) (b) 31 March 2019 31 March 2019 31 March 2018 Property, plant and equipment Land 70 - - 70 ----7070 Buildings 997 83 2 1,078 332 38 2 368 710 665 Plant and machinery 5,633 540 224 5,949 3,440 532 195 3777 2,172 2,193 Furniture and ﬁ xtures 219 18 1 236 174 14 1 187 49 45 Offi ce equipment 414 36 37 413 343 50 37 356 57 71 Total (A) 7,333 677 264 7,746 4,289 634 235 4,688 3,058 3,044

Intangible assets Softwares 227 22 - 249 167 35 - 202 47 60 Others 102 - - 102 33 9 - 42 60 69 Total (B) 329 22 - 351 200 44 - 244 107 129

Total (A+B) 7,662 699 264 8,097 4,489 678 235 4,932 3,165 3,173 Previous year 7486 455 279 7,662 3,987 722 220 4,489 3,173 a) Additions include transfers from non-research and development group to research and development group. The gross carrying value of such transferred assets is ` 62 (31 March 2018: ` 46) and accumulated depreciation/amortisation is ` 13 (31 March 2018: ` 36). b) Disposals include transfers from research and development group to non-research and development group. The gross carrying value of such transferred assets is ` 57 (31 March 2018: ` 99) and accumulated depreciation/amortisation is ` 38 (31 March 2017: ` 43). 2.36 Subsequent events Agreement with Celgene The Company has entered into a settlement agreement with Celgene, pursuant to which the Company received a one-time payment of US$ 50 million in settlement of any claim the Company or its affi liates may have had for damages under section 8 of the Canadian Patented Medicines (Notice of Compliance) Regulations in regard to the Company’s ANDS for a generic version of REVLIMID brand capsules, (Lenalidomide) pending before Health Canada.

Building a winning future 173 Dr. Reddy’s Laboratories Limited

NOTES TO FINANCIAL STATEMENTS

(All amounts in Indian Rupees millions, except share data and where otherwise stated)

174 Company Overview Statutory Reports Financial Statements Annual Report 2018-19

Consolidated

CONSOLIDATED FINANCIAL STATEMENTS

Independent Auditors’ Report 176

Consolidated Balance sheet 184

Consolidated Statement of Proﬁt and Loss 185

Consolidated Statement of Changes in Equity 186

Consolidated Statement of Cash Flows 188

Notes to the Consolidated Financial Statements 189

Building a winning future 175 Dr. Reddy’s Laboratories Limited

INDEPENDENT AUDITORS' REPORT

To the members of Dr. Reddy’s Laboratories Limited Report on the Audit of the Consolidated Ind AS Financial Statements Opinion We have audited the accompanying consolidated Ind AS fi nancial statements of Dr. Reddy’s Laboratories Limited (hereinafter referred to as “the Holding Company”), its subsidiaries (the Holding Company and its subsidiaries together referred to as “the Group”) and joint ventures comprising of the Consolidated Balance sheet as at 31 March 2019, the Consolidated Statement of Profi t and Loss, including other comprehensive income, the Consolidated Statement of Cash Flows and the Consolidated Statement of Changes in Equity for the year then ended, and notes to the consolidated Ind AS fi nancial statements, including a summary of signifi cant accounting policies and other explanatory information (hereinafter referred to as “the consolidated Ind AS fi nancial statements”). In our opinion and to the best of our information and according to the explanations given to us and based on the consideration of reports of other auditors on separate fi nancial statements and on the other fi nancial information of the subsidiaries, the aforesaid consolidated Ind AS fi nancial statements give the information required by the Companies Act, 2013, as amended (“the Act”) in the manner so required and give a true and fair view in conformity with the accounting principles generally accepted in India, of the consolidated state of aff airs of the Group, and joint ventures as at 31 March 2019, their consolidated profi t including other comprehensive income,their consolidated cash fl ows and the consolidated statement of changes in equity for the year ended on that date. Basis for Opinion We conducted our audit of the consolidated Ind AS fi nancial statements in accordance with the Standards on Auditing (SAs), as specifi ed under section 143(10) of the Act. Our responsibilities under those Standards are further described in the ‘Auditors' Responsibilities for the Audit of the Consolidated Ind AS Financial Statements’ section of our report. We are independent of the Group in accordance with the ‘Code of Ethics’ issued by the Institute of Chartered Accountants of India together with the ethical requirements that are relevant to our audit of the consolidated Ind AS fi nancial statements under the provisions of the Act and the Rules thereunder, and we have fulfi lled our other ethical responsibilities in accordance with these requirements and the Code of Ethics. We believe that the audit evidence we have obtained is suffi cient and appropriate to provide a basis for our audit opinion on the consolidated Ind AS financial statements. Key Audit Matters Key audit matters are those matters that, in our professional judgment, were of most signifi cance in our audit of the consolidated Ind AS fi nancial statements for the fi nancial year ended 31 March 2019. These matters were addressed in the context of our audit of the consolidated Ind AS fi nancial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. For each matter below, our description of how our audit addressed the matter is provided in that context. We have determined the matters described below to be the key audit matters to be communicated in our report. We have fulfi lled the responsibilities described in the Auditors' responsibilities for the audit of the consolidated Ind AS fi nancial statements section of our report, including in relation to these matters. Accordingly, our audit included the performance of procedures designed to respond to our assessment of the risks of material misstatement of the consolidated Ind AS fi nancial statements. The results of audit procedures performed by us and by other auditors of components not audited by us, as reported by them in their audit reports furnished to us, including those procedures performed to address the matters below, provide the basis for our audit opinion on the accompanying consolidated Ind AS fi nancial statements.

Key audit matters How our audit addressed the key audit matter Carrying value of intangible assets, intangible assets under development and goodwill (as described in note 1.3(g) and 1.3(j) of the signifi cant accounting policies, and note 2.2, 2.3 and 2.4 for details and movement in goodwill, intangible assets and intangible assets under development in the consolidated Ind AS fi nancial statements) As at 31 March 2019, the Company has Our audit procedures included the following: ` 18,124 million of intangible assets, ` 24,610 We evaluated the design and tested the operating eff ectiveness of management’s controls in million of intangible assets under development assessing the carrying value of goodwill and intangible assets. and ` 4,659 million of goodwill. The carrying value of these intangible assets are based on We assessed the Group’s methodology applied in determining the CGUs to which goodwill is future cash fl ows and there is a risk that the allocated. assets may be impaired if cash fl ows are not in We assessed the Company’s valuation methodology applied in deriving the recoverable value. line with projections. We evaluated the assumptions applied to key inputs such as discount rates, sales volume and Valuation of goodwill and intangible assets prices, long term growth rates and terminal values, which included comparing these inputs is subject to management's assessment of with assumptions made by the management in prior years. recoverable amount, being the higher of the We discussed potential changes in key drivers as compared to previous year / actual value in use and fair value less costs to sell, performance with management to evaluate whether the inputs and assumptions used in the involving signifi cant judgment and are based cash fl ow forecasts were suitable. on number of variables and estimates including We tested the arithmetical accuracy of the models. projection of future sales, operating costs and profi t margins; appropriate discount rate and We also assessed the recoverable value headroom by performing sensitivity testing of key terminal value growth rate; and probability assumptions used. of technical and regulatory success factors We evaluated the adequacy of fi nancial statement disclosures, including disclosures of key in applying discounted cash fl ow valuation assumptions, judgements and sensitivities. methodology.

176 Company Overview Statutory Reports Financial Statements Annual Report 2018-19

Consolidated

INDEPENDENT AUDITORS' REPORT (CONTINUED)

Key audit matters How our audit addressed the key audit matter Contingencies, including litigations and tax (as described in note 1.3(l) of the signifi cant accounting policies, and note 2.33(A) containing details of contingencies in the consolidated Ind AS fi nancial statements) The Company and certain of its subsidiaries are Our audit procedures included the following: involved in disputes, lawsuits, claims, anti-trust, We evaluated the design and tested the operating eff ectiveness of controls relating to governmental and / or regulatory inspections, identifi cation and evaluation of claims, proceedings and investigations at diff erent levels in inquiries, investigations and proceedings, the group, and the measurement of provisions for disputes, potential claims and litigation, including patent, tax and commercial matters contingent liabilities and disclosures. that arise from time to time in the ordinary course of business. Most of the claims involve complex We obtained a list of ongoing litigations from the Company’s in house legal counsel. We issues. The Company, assisted by their external selected a sample of litigations based on materiality and performed inquiries with the said legal counsel assesses the need to make counsel on the legal evaluation of these litigations. We have compared the said evaluation with provision or disclose a contingency on a case- the provision or disclosure in the consolidated Ind AS fi nancial statements. We have tested the to-case basis considering the underlying facts of underlying computation of the management in relation to the measurement of provision or the each litigation. The aforesaid assessment may contingency. result in an incorrect disclosure or provision in We solicited legal letters from the Company’s external legal advisors with respect to the matters the books of account. included in the summary. Where appropriate we examined correspondences connected with This area is signifi cant to our audit, since the the cases. accounting and disclosure for contingent legal We obtained the details of tax assessments and demands as at the year ended and tax liabilities is complex and judgemental 31 March 2019. We inspected relevant communication with tax authorities. We involved tax (due to the diffi culty in predicting the outcome experts in assessing the nature and amount of the tax exposures and assessed management’s of the matter and estimating the potential conclusions on whether exposures are probable, contingent or remote. Where exposures are impact if the outcome is unfavourable), and the assessed as probable, we evaluated the amounts provided with respect to those exposures. amounts involved are, or can be, material to the We also evaluated the disclosures in the consolidated Ind AS fi nancial statements. consolidated Ind AS fi nancial statements. Rebates, discounts and chargebacks, etc. in Revenue (as described in note 1.3(m) of the of the signifi cant accounting policies in the consolidated Ind AS fi nancial statements and note 2.13 of the consolidated Ind AS fi nancial statements) Revenue is recognised net of accrual for sales Our audit procedures included the following: returns and chargeback, rebates & discounts, We assessed and performed test of controls over the completeness, recognition and etc. The estimates relating to the accruals are measurement of accruals. important given the signifi cance of revenue We obtained Management’s calculations for accruals and assessed the assumptions used by and also considering the distinctive terms of reference to the company’s stated commercial policies, the terms of the applicable contracts. arrangement with customers. These estimates are complex and requires signifi cant judgement We assessed management analysis of the historical pattern of charge back rates and the and estimation by the Company for establishing inventory information in order to validate management’s assumption for creation of such an appropriate accrual. Accuracy of revenues provisions. may deviate on account of change in judgements We compared the assumptions to contracted prices, historical rebates, discounts, allowances and estimates. Accordingly, the same has been and returns, where relevant and to current payment trends. We also considered the historical considered as a key audit matter. accuracy of the management’s estimates in prior years. We have also performed procedures to test recording of revenue in appropriate period which includes: o Performing trend analysis over sales levels as compared to previous periods. o Testing management’s monitoring process over distributors’ stocking levels. o Verifying sample sales transactions near period-end. o Evaluating the level of returns following the period end and compared to previous periods.

Building a winning future 177 Dr. Reddy’s Laboratories Limited

INDEPENDENT AUDITORS' REPORT (CONTINUED)

Key audit matters How our audit addressed the key audit matter Recognition, measurement, presentation and disclosures of revenues and other related balances in view of adoption of Ind AS 115, Revenue from Contracts with Customers (as described in note 1.3(a) of the signifi cant accounting policies of consolidated Ind AS fi nancial statements) The Group has adopted Ind AS 115, Revenue Our audit procedures included the following: from Contracts with Customers, starting We considered the group’s revenue recognition accounting policies based on the principles in 1 April 2018. The adoption of the new revenue Ind AS 115. accounting standard involves application of We evaluated the design, implementation and eff ective operation of the internal controls certain key principles relating to identifi cation relating to implementation of the new revenue accounting standard. of performance obligations, determination of transaction price of the identifi ed performance We selected samples of continuing and new contracts and performed the following procedures: obligations, the timing of transfer of control for o Read, analysed and identifi ed the distinct performance obligations in these contracts. recognition of revenue or the appropriateness of o Compared these performance obligations with that identifi ed and recorded by the the basis used to measure revenue recognized Company. over a period. Additionally, new revenue o Considered the terms of the contracts to determine the transaction price including any accounting standard contains new disclosures. variable consideration to verify the transaction price used to compute revenue. o Evaluated management assessment of point of recognition of revenue based on transfer of control or satisfaction of obligations over time. We evaluated the adequacy of fi nancial statement disclosures, pursuant to new revenue accounting standard.

Other Information The Holding Company’s Board of Directors is responsible for the other information. The other information comprises, Statutory reports, corporate governance and Board’s report included in the Annual report, but does not include the consolidated Ind AS fi nancial statements and our auditors' report thereon, which we obtained prior to the date of this auditors' report, and Corporate Overview and letter from Chairman and Co-Chairman included in the Annual report, which is expected to be made available to us after that date. Our opinion on the consolidated Ind AS fi nancial statements does not cover the other information and we do not and will not express any form of assurance conclusion thereon. In connection with our audit of the consolidated Ind AS fi nancial statements, our responsibility is to read the other information and, in doing so, consider whether such other information is materially inconsistent with the consolidated Ind AS fi nancial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. Responsibilities of Management for the Consolidated Ind AS Financial Statements The Holding Company’s Board of Directors is responsible for the preparation and presentation of these consolidated Ind AS fi nancial statements in terms of the requirements of the Act that give a true and fair view of the consolidated fi nancial position, consolidated fi nancial performance including other comprehensive income, consolidated cash fl ows and consolidated statement of changes in equity of the Group and joint ventures in accordance with the accounting principles generally accepted in India, including the Indian Accounting Standards (Ind AS) specifi ed under section 133 of the Act read with the Companies (Indian Accounting Standards) Rules, 2015, as amended. The respective Board of Directors of the companies included in the Group and its joint ventures are responsible for maintenance of adequate accounting records in accordance with the provisions of the Act for safeguarding of the assets of the Group and of its joint ventures and for preventing and detecting frauds and other irregularities; selection and application of appropriate accounting policies; making judgments and estimates that are reasonable and prudent; and the design, implementation and maintenance of adequate internal fi nancial controls, that were operating eff ectively for ensuring the accuracy and completeness of the accounting records, relevant to the preparation and presentation of the consolidated Ind AS fi nancial statements that give a true and fair view and are free from material misstatement, whether due to fraud or error, which have been used for the purpose of preparation of the consolidated Ind AS fi nancial statements by the Directors of the Holding Company, as aforesaid. In preparing the consolidated Ind AS fi nancial statements, the respective Board of Directors of the companies included in the Group and of its joint ventures are responsible for assessing the ability of the Group and of its joint ventures to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Group or to cease operations, or has no realistic alternative but to do so. Those respective Board of Directors of the companies included in the Group and of its joint ventures are also responsible for overseeing the fi nancial reporting process of the Group and of its joint ventures.

178 Company Overview Statutory Reports Financial Statements Annual Report 2018-19

Consolidated

INDEPENDENT AUDITORS' REPORT (CONTINUED)

Auditors' Responsibilities for the Audit of the Consolidated Ind AS Financial Statements Our objectives are to obtain reasonable assurance about whether the consolidated Ind AS fi nancial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors' report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with SAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to infl uence the economic decisions of users taken on the basis of these consolidated Ind AS fi nancial statements. As part of an audit in accordance with SAs, we exercise professional judgment and maintain professional skepticism throughout the audit. We also:

Identify and assess the risks of material misstatement of the consolidated Ind AS ﬁ nancial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is suffi cient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances. Under section 143(3)(i) of the Act, we are also responsible for expressing our opinion on whether the Holding Company has adequate internal ﬁ nancial controls system in place and the operating eff ectiveness of such controls.

Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.

Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast signiﬁ cant doubt on the ability of the Group and its joint ventures to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditors' report to the related disclosures in the consolidated Ind AS ﬁ nancial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditors' report. However, future events or conditions may cause the Group and its joint ventures to cease to continue as a going concern.

Evaluate the overall presentation, structure and content of the consolidated Ind AS ﬁ nancial statements, including the disclosures, and whether the consolidated Ind AS ﬁ nancial statements represent the underlying transactions and events in a manner that achieves fair presentation.

Obtain suffi cient appropriate audit evidence regarding the fi nancial information of the entities or business activities within the Group and its joint ventures of which we are the independent auditors and whose fi nancial information we have audited, to express an opinion on the consolidated Ind AS fi nancial statements. We are responsible for the direction, supervision and performance of the audit of the consolidated Ind AS fi nancial statements of such entities included in the consolidated Ind AS fi nancial statements of which we are the independent auditors. For the other entities included in the consolidated Ind AS fi nancial statements, which have been audited by other auditors, such other auditors remain responsible for the direction, supervision and performance of the audits carried out by them. We remain solely responsible for our audit opinion. We communicate with those charged with governance of the Holding Company and such other entities included in the consolidated Ind AS fi nancial statements of which we are the independent auditors regarding, among other matters, the planned scope and timing of the audit and signifi cant audit fi ndings, including any signifi cant defi ciencies in internal control that we identify during our audit. We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. From the matters communicated with those charged with governance, we determine those matters that were of most signifi cance in the audit of the consolidated Ind AS fi nancial statements for the fi nancial year ended 31 March 2019 and are therefore the key audit matters. We describe these matters in our auditors' report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefi ts of such communication.

Building a winning future 179 Dr. Reddy’s Laboratories Limited

INDEPENDENT AUDITORS' REPORT (CONTINUED)

Other Matters We did not audit the fi nancial statements and other fi nancial information, in respect of two subsidiaries, whose Ind AS fi nancial statements include total assets of `19,515 million as at 31 March 2019, and total revenues of ` 21,954 million and net cash outfl ows of `10 million for the year ended on that date. These Ind AS fi nancial statement and other fi nancial information have been audited by other auditors, which fi nancial statements, other fi nancial information and auditors’ reports have been furnished to us. Our opinion on the consolidated Ind AS fi nancial statements, in so far as it relates to the amounts and disclosures included in respect of these subsidiaries, and our report in terms of sub-sections (3) of Section 143 of the Act, in so far as it relates to the aforesaid subsidiaries, is based solely on the report(s) of such other auditors. These subsidiaries are located outside India whose fi nancial statements and other fi nancial information have been prepared in accordance with accounting principles generally accepted in their respective countries and which have been audited by other auditors under generally accepted auditing standards applicable in their respective countries. The Company’s management has converted the fi nancial statements of such subsidiaries located outside India from accounting principles generally accepted in their respective countries to accounting principles generally accepted in India. We have audited these conversion adjustments made by the Company’s management. Our opinion in so far as it relates to the balances and aff airs of such subsidiaries located outside India is based on the report of other auditors and the conversion adjustments prepared by the management of the Company and audited by us. Our opinion above on the consolidated Ind AS fi nancial statements, and our report on Other Legal and Regulatory Requirements below, is not modifi ed in respect of the above matters with respect to our reliance on the work done and the reports of the other auditors and the fi nancial statements and other fi nancial information certifi ed by the Management. Report on Other Legal and Regulatory Requirements As required by Section 143(3) of the Act, based on our audit and on the consideration of report of the other auditors on separate fi nancial statements and the other fi nancial information of subsidiaries, as noted in the ‘other matter’ paragraph we report, to the extent applicable, that: a) We/the other auditors whose report we have relied upon have sought and obtained all the information and explanations which to the best of our knowledge and belief were necessary for the purposes of our audit of the aforesaid consolidated Ind AS fi nancial statements; b) In our opinion, proper books of account as required by law relating to preparation of the aforesaid consolidation of the fi nancial statements have been kept so far as it appears from our examination of those books and reports of the other auditors; c) The Consolidated Balance Sheet, the Consolidated Statement of Profi t and Loss including the Statement of Other Comprehensive Income, the Consolidated Statement of Cash Flows and Consolidated Statement of Changes in Equity dealt with by this Report are in agreement with the books of account maintained for the purpose of preparation of the consolidated Ind AS fi nancial statements; d) In our opinion, the aforesaid consolidated Ind AS fi nancial statements comply with the Accounting Standards specifi ed under Section 133 of the Act, read with Companies (Indian Accounting Standards) Rules, 2015, as amended; e) On the basis of the written representations received from the directors of the Holding Company as on 31 March 2019 taken on record by the Board of Directors of the Holding Company and the reports of the statutory auditors who are appointed under Section 139 of the Act, of its subsidiary companies, and joint ventures incorporated in India, none of the directors of the Group’s companies, its joint ventures incorporated in India is disqualifi ed as on 31 March 2019 from being appointed as a director in terms of Section 164 (2) of the Act; f) With respect to the adequacy and the operating eff ectiveness of the internal nancialfi controls over fi nancial reporting with reference to these consolidated Ind AS fi nancial statements of the Holding Company and its subsidiary companies, and joint ventures incorporated in India, refer to our separate Report in “Annexure 1” to this report; g) In our opinion and based on the consideration of reports of other statutory auditors of the subsidiaries, and joint ventures incorporated in India, the managerial remuneration for the year ended 31 March 2019 has been paid / provided by the Holding Company, its subsidiaries, and joint ventures incorporated in India to their directors in accordance with the provisions of section 197 read with Schedule V to the Act;

180 Company Overview Statutory Reports Financial Statements Annual Report 2018-19

Consolidated

INDEPENDENT AUDITORS' REPORT (CONTINUED) h) With respect to the other matters to be included in the Auditors' Report in accordance with Rule 11 of the Companies (Audit and Auditors) Rules, 2014, as amended, in our opinion and to the best of our information and according to the explanations given to us and based on the consideration of the report of the other auditors on separate fi nancial statements as also the other fi nancial information of the subsidiaries, as noted in the ‘Other matter’ paragraph: (i) The consolidated Ind AS fi nancial statements disclose the impact of pending litigations on its consolidated fi nancial position of the Group, and joint ventures in its consolidated Ind AS fi nancial statements – Refer note 2.33(A) to the consolidated Ind AS fi nancial statements; (ii) Provision has been made in the consolidated Ind AS fi nancial statements, as required under the applicable law or accounting standards, for material foreseeable losses, if any, on long-term contracts including derivative contracts; (iii) There has been no delay in transferring amounts, required to be transferred, to the Investor Education and Protection Fund by the Holding Company, its subsidiaries, and joint ventures incorporated in India during the year ended 31 March 2019.

for S.R. Batliboi & Associates LLP Chartered Accountants ICAI Firm Registration Number: 101049W/E300004 per S Balasubrahmanyam Partner Membership Number: 53315 Place : Hyderabad Date : 17 May 2019

Building a winning future 181 Dr. Reddy’s Laboratories Limited

ANNEXURE 1 TO THE INDEPENDENT AUDITORS' REPORT OF EVEN DATE ON THE CONSOLIDATED IND AS FINANCIAL STATEMENTS OF DR. REDDY’S LABORATORIES LIMITED

Report on the Internal Financial Controls under Clause (i) of Sub-section 3 of Section 143 of the Companies Act, 2013 (“the Act”) In conjunction with our audit of the consolidated Ind AS fi nancial statements of Dr. Reddy’s Laboratories Limited as of and for the year ended 31 March 2019, we have audited the internal fi nancial controls over fi nancial reporting of Dr. Reddy’s Laboratories Limited (hereinafter referred to as the “Holding Company”) and its subsidiary companies, and joint ventures, which are companies incorporated in India, as of that date. Management’s Responsibility for Internal Financial Controls The respective Board of Directors of the Holding Company, its subsidiary companies, and joint ventures, which are companies incorporated in India, are responsible for establishing and maintaining internal fi nancial controls based on the internal control over fi nancial reporting criteria established by the Holding Company considering the essential components of internal control stated in the Guidance Note on Audit of Internal Financial Controls Over Financial Reporting issued by the Institute of Chartered Accountants of India. These responsibilities include the design, implementation and maintenance of adequate internal fi nancial controls that were operating eff ectively for ensuring the orderly and effi cient conduct of its business, including adherence to the respective company’s policies, the safeguarding of its assets, the prevention and detection of frauds and errors, the accuracy and completeness of the accounting records, and the timely preparation of reliable fi nancial information, as required under the Act. Auditors' Responsibility Our responsibility is to express an opinion on the company's internal fi nancial controls over fi nancial reporting with reference to these consolidated Ind AS fi nancial statements based on our audit. We conducted our audit in accordance with the Guidance Note on Audit of Internal Financial Controls Over Financial Reporting (the “Guidance Note”) and the Standards on Auditing, both, issued by Institute of Chartered Accountants of India, and deemed to be prescribed under section 143(10) of the Act, to the extent applicable to an audit of internal fi nancial controls. Those Standards and the Guidance Note require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether adequate internal fi nancial controls over fi nancial reporting with reference to these consolidated Ind AS fi nancial statements was established and maintained and if such controls operated eff ectively in all material respects. Our audit involves performing procedures to obtain audit evidence about the adequacy of the internal fi nancial controls over fi nancial reporting with reference to these consolidated Ind AS fi nancial statements and their operating eff ectiveness. Our audit of internal fi nancial controls over fi nancial reporting included obtaining an understanding of internal fi nancial controls over fi nancial reporting with reference to these consolidated Ind AS fi nancial statements, assessing the risk that a material weakness exists, and testing and evaluating the design and operating eff ectiveness of internal control based on the assessed risk. The procedures selected depend on the auditors' judgement, including the assessment of the risks of material misstatement of the consolidated Ind AS fi nancial statements, whether due to fraud or error. We believe that the audit evidence we have obtained and the audit evidence obtained by the other auditors in terms of their reports referred to in the Other Matters paragraph below, is suffi cient and appropriate to provide a basis for our audit opinion on the internal financial controls over fi nancial reporting with reference to these consolidated Ind AS fi nancial statements. Meaning of Internal Financial Controls Over Financial Reporting With Reference to these Consolidated Ind AS Financial Statements A company's internal fi nancial control over fi nancial reporting with reference to these consolidated Ind AS fi nancial statements is a process designed to provide reasonable assurance regarding the reliability of fi nancial reporting and the preparation of consolidated Ind AS fi nancial statements for external purposes in accordance with generally accepted accounting principles. A company's internal fi nancial control over fi nancial reporting with reference to these consolidated Ind AS fi nancial statements includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly refl ect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of consolidated Ind AS fi nancial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorisations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorised acquisition, use, or disposition of the company's assets that could have a material eff ect on the consolidated Ind AS financial statements. Inherent Limitations of Internal Financial Controls Over Financial Reporting With Reference to these Consolidated Ind AS Financial Statements Because of the inherent limitations of internal fi nancial controls over fi nancial reporting with reference to these consolidated Ind AS fi nancial statements, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may occur and not be detected. Also, projections of any evaluation of the internal fi nancial controls over fi nancial reporting with reference to these consolidated Ind AS fi nancial statements to future periods are subject to the risk that the internal fi nancial control over fi nancial reporting with reference to these consolidated Ind AS fi nancial statements may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

182 Company Overview Statutory Reports Financial Statements Annual Report 2018-19

Consolidated

ANNEXURE 1 TO THE INDEPENDENT AUDITORS' REPORT OF EVEN DATE ON THE CONSOLIDATED IND AS FINANCIAL STATEMENTS OF DR. REDDY’S LABORATORIES LIMITED (CONTINUED)

Opinion In our opinion, the Holding Company, its subsidiary companies, and joint ventures, which are companies incorporated in India, have, maintained in all material respects, adequate internal fi nancial controls over fi nancial reporting with reference to these consolidated Ind AS fi nancial statements and such internal fi nancial controls over fi nancial reporting with reference to these consolidated Ind AS fi nancial statements were operating eff ectively as at 31 March 2019, based on the internal control over fi nancial reporting criteria established by the Holding Company considering the essential components of internal control stated in the Guidance Note on Audit of Internal Financial Controls Over Financial Reporting issued by the Institute of Chartered Accountants of India. Other Matters Our report under Section 143(3)(i) of the Act on the adequacy and operating eff ectiveness of the internal fi nancial controls over fi nancial reporting with reference to these consolidated Ind AS fi nancial statements of the Holding Company, insofar as it relates to the subsidiary companies, and a joint venture, which are companies incorporated in India, is based on the corresponding reports of the auditors of such subsidiary, and joint ventures incorporated in India.

for S.R. Batliboi & Associates LLP Chartered Accountants ICAI Firm Registration Number: 101049W/E300004 per S Balasubrahmanyam Partner Membership Number: 53315 Place : Hyderabad Date : 17 May 2019

Building a winning future 183 Dr. Reddy’s Laboratories Limited

CONSOLIDATED BALANCE SHEET

(All amounts in Indian Rupees millions, except share data and where otherwise stated)

As at As at Particulars Note 31 March 2019 31 March 2018 Assets Non-current assets Property, plant and equipment 2.1 49,127 49,733 Capital work-in-progress 4,725 7,678 Goodwill 2.2 4,659 5,331 Other intangible assets 2.3 18,124 14,616 Intangible assets under development 2.4 24,610 27,027 Investment in equity accounted investees 2.5 2,529 2,104 Financial assets Investments 2.6 A 813 2,549 Trade receivables 2.6 B 113 169 Other ﬁ nancial assets 2.6 C 731 756 Deferred tax assets, net 2.29 4,317 5,405 Tax assets, net 3,400 4,567 Other non-current assets 2.7 A 407 524 113,555 120,459 Current assets Inventories 2.8 33,579 29,089 Financial assets Investments 2.6 A 22,529 18,330 Trade receivables 2.6 B 39,869 40,527 Derivative instruments 2.31 360 105 Cash and cash equivalents 2.6 D 2,228 2,638 Other ﬁ nancial assets 2.6 C 2,112 1,533 Other current assets 2.7 B 10,424 12,762 111,101 104,984 Total assets 224,656 225,443

Equity and Liabilities Equity Equity share capital 2.9 830 830 Other equity 139,406 124,886 140,236 125,716 Liabilities Non-current liabilities Financial Liabilities Borrowings 2.10 A 22,000 25,089 Other fi nancial liabilities 2.10 C 102 144 Provisions 2.11 A 793 817 Deferred tax liabilities, net 2.29 473 1,950 Other non-current liabilities 2.12 A 2,079 2,789 25,447 30,789 Current liabilities Financial Liabilities Borrowings 2.10 B 12,125 25,562 Trade payables 2.10 D Total outstanding dues of micro enterprises and small enterprises 77 93 Total outstanding dues of creditors other than micro enterprises and small enterprises 13,594 13,252 Derivative instruments 2.31 68 85 Other fi nancial liabilities 2.10 C 22,670 19,497 Liabilities for current tax, net 181 1,530 Provisions 2.11 B 4,789 4,387 Other current liabilities 2.12 B 5,469 4,532 58,973 68,938 Total equity and liabilities 224,656 225,443 The accompanying notes are an integral part of the consolidated fi nancial statements.

184 Company Overview Statutory Reports Financial Statements Annual Report 2018-19

Consolidated CONSOLIDATED STATEMENT OF PROFIT AND LOSS

(All amounts in Indian Rupees millions, except share data and where otherwise stated)

For the year ended For the year ended Particulars Note 31 March 2019 31 March 2018 Income Sales 2.13 148,706 138,022 Service income and License fees 2.13 5,145 4,006 Other operating income 2.14 631 782 Total revenue from operations 154,482 142,810 Other income 2.15 3,375 1,552 Total income 157,857 144,362

Expenses Cost of materials consumed 28,894 26,309 Purchase of stock-in-trade 18,808 14,501 Changes in inventories of ﬁ nished goods, work-in-progress and stock-in-trade 2.16 (2,754) (415) Employee beneﬁ ts expense 2.17 33,562 32,149 Depreciation and amortisation expense 2.18 11,348 10,772 Finance costs 2.19 889 788 Selling and other expenses 2.20 44,190 46,754 Total expenses 134,937 130,858

Profi t before tax 22,920 13,504 Tax expense 2.29 Current tax 4,707 1,753 Deferred tax (849) 2,627 Net profi t for the year before share of profi t of equity accounted investees 19,062 9,124 Share of profi t of equity accounted investees, net of tax 438 344 Profi t for the year 19,500 9,468

Other comprehensive income (OCI) Items that will not be reclassifi ed subsequently to profi t or loss (379) (3,710) Income tax on items that will not be reclassifi ed subsequently to profi t or loss (673) 874 (1,052) (2,836) Items that will be reclassifi ed subsequently to profi t or loss 19 (23) Income tax on items that will be reclassifi ed subsequently to profi t or loss (54) 23 (35) 0

Total other comprehensive income/(loss) for the year, net of tax (1,087) (2,836)

Total comprehensive income for the year 18,413 6,632

Proﬁ t for the year Attributable to: Equity holders of the parent 19,500 9,468 Non-controlling interests - -

Total comprehensive income for the year Attributable to: Equity holders of the parent 18,413 6,632 Non-controlling interests - -

Earnings per share: 2.23 Basic earnings per share of ` 5/- each 117.53 57.08 Diluted earnings per share of ` 5/- each 117.33 56.96 The accompanying notes are an integral part of the consolidated ﬁ nancial statements.

Building a winning future 185 Dr. Reddy’s Laboratories Limited - - 17 111 389 Total Total Total Total (814) (146) equity equity (535) (4,148) (4,148) 19,500 19,500 18,668 (4,002) 125,716 125,716 122,621 140,236 140,236 - - (3,537) - (3,992) - 454 - - - - (3,537) - 1 ------(2,876) - (39) - - 40 - - 9,468 (10) (10) 39 39 39 6,632 reserve reserve translation translation Foreign currency Foreign currency - (9) (9) - - - - (146) ------17 17 (146) 40 40 ned ned (89) 3,676 (146) 3,783 (106) 3,822 (106) 3,822 125,716 ts plan ts plan benefi benefi Remeasurements Remeasurements Remeasurements of the net defi of the net defi - (8) (8) ------Other comprehensive income instruments instruments FVTOCI** equity FVTOCI** equity FVTOCI** (7) (7) ow ow hedge hedge reserve reserve Cash fl Cash fl earnings earnings Retained Retained Retained (All amounts in Indian Rupees millions, except share data and where otherwise stated) (All amounts in Indian Rupees millions, except (6) (6) General General reserve reserve Other components of equity Other components of equity ---- (5) (5) Capital Capital reserve reserve redemption redemption (4) (4) Capital Capital reserve reserve -- (3) (3) Reserves and surplus Reserves Reserves and surplus Reserves Other comprehensive income payment payment reserve reserve Share-based Share-based (2) (2) Securities Securities premium premium (1) (1) ------19,755 111 (1,069) ------255 - (1,069) reasury shares shares T Treasury ------19,500 ------9,468 - - - (535) ------(535) 420 (31) - - - - - (4,002) ------(535) - - 420 - - (31) ------111 ------(4,002) (4,002) ------(39) ------9,468 (39) (2,876) ------(2,876) 1 - 432 (432) - - - - - 1 - 432 22 - - - (3,992) - 1 - 432 22 - - - (3,992) - -* - 420 (420) - - - - - 830 - 5,211 826 267 173 20,374 96,247 45 (1,973) 829 - 4,779 804 267 173 20,374 90,771 84 903 830 (535) 5,631 795 267 173 20,374 112,000 156 (3,042) 830 - 5,211 826 267 173 20,374 96,247 45 (1,973) share capital Equity Equity share capital ow ow t t ` 893 t of ercise of options 40 (Refer note 2.31) ` 40 (Refer t of to millions. ` 15 t of ounded off ounded t for the year t for the year ective portion of changes in fair value cash fl Changes in ownership interests Total contributions and distributions Total Dividend paid (including dividend distribution tax)distribution dividend (including paid Dividend ------(3,992) - Balance as at 31 March 2019 [(A)+(B)+(C)] Balance as at 31 March 2018 [(A)+(B)+(C)] Share-based payment expense note (Refer 2.28) - - - 454 - - - - - Net change in fair value of FVTOCI** equity Net change in fair value of FVTOCI** instruments, net of tax expense ` 411 Foreign currency translation adjustments, net of tax benefi note 2.28)Share-based payment expense (Refer Purchase of treasury shares - - - 389 - - - - - 69 (Refer note 2.31) hedges, net of tax expense ` 69 (Refer note 2.27) obligations, net of tax expense ` 7 (Refer Particulars Particulars Balance as at 1 April 2018 (A) ective portion of changes in fair value cash fl Eff Actuarial gain/(loss) on post-employment benefi Dividend paid (including dividend distribution tax) transactions with owners of the Company (C ) Total Particulars Balance as at 1 April 2017 (A) Eff Actuarial gain/(loss) on post-employment benefi transactions with owners of the Company (C ) Total (Refer note 2.9) (Refer note 2.27) obligations, net of tax expense ` 19 (Refer Profi with owners of the Company Transactions Contributions and distributions Issue of equity shares on ex Profi Total contributions and distributions Total Changes in ownership interests Foreign currency translation adjustments, net of tax expense of ` 17 Net change in fair value of FVTOCI** equity Net change in fair value of FVTOCI** instruments, net of tax benefi comprehensive income (B) Total with owners of the Company Transactions Contributions and distributions of options Issue of equity shares on exercise note 2.9) (Refer Total comprehensive income (B) Total hedges, net of tax benefi CONSOLIDATED STATEMENT OF CHANGES IN EQUITY STATEMENT CONSOLIDATED * R ** represents fair value through other comprehensive income. FVTOCI

186 Company Overview Statutory Reports Financial Statements Annual Report 2018-19

Consolidated e (CONTINUED) ed subsequently to consolidated Chairman Officer Co-Chairman & Chief Executive Chief Financial Officer Company Secretary (All amounts in Indian Rupees millions, except share data and where otherwise stated) (All amounts in Indian Rupees millions, except t and loss in the period which hedged transaction occurs. Dr. Reddy’s Laboratories Limited Laboratories Reddy’s for and on behalf of the Board Directors Dr. G V Prasad Saumen Chakraborty Sandeep Poddar K Satish Reddy . nancial statements. ective portion of gains or losses arising on changes in fair value designated hedging instruments entered into ed to consolidated statement of profi ts plan reserve comprises the cumulative net gains/ losses on actuarial valuation of post-employment obligations. Refer note 2.27 for further note 2.27 ts plan reserve comprises the cumulative net gains/ losses on actuarial valuation of post-employment obligations. Refer ned benefi t or loss on purchase, sale, issue or cancellation of the Company’s own equity instruments to capital reserve. issue or cancellation of the Company’s sale, t or loss on purchase, ed to retained earnings when those assets have been disposed off t and loss. erences arising from the translation of fi nancial statements of foreign operations with functional currency other than Indian rupees is recognised in comprehensiv erences arising from the translation of fi ow hedging reserve represents the cumulative eff ow hedges. Such gains or losses will be reclassifi for cash fl value of the shares so purchased is transferred to capital redemption reserve. The reserve is utilised in accordance with the provisions of Section 69 the Companies Act, 2013. The reserve is utilised in accordance with the provisions value of the shares so purchased is transferred to capital redemption reserve. remuneration. Refer to note 2.28 for further details of these plans. remuneration. Refer amounts reclassifi formed to support the Dr. Reddy’s Employees Stock Option Scheme, 2018 by acquiring, including through secondary market acquisitions, equity shares which are used for issuance 2018 by acquiring, including through secondary market acquisitions, Option Scheme, Employees Stock Reddy’s formed to support the Dr. Employees Stock Reddy’s nancial statements for further details on the Dr. to note 2.28 of these consolidated fi Refer of stock options thereunder. to eligible employees upon exercise 2018. Option Scheme, from one component of equity to another and is not an item of other comprehensive income, items included in the general reserve will not be reclassifi from one component of equity to another and is not an item other comprehensive income, details. statement of profi income, net of taxes and is presented within equity in the foreign currency translation reserve. net of taxes income, diff The exchange ts from retained earnings for appropriation purposes. As the general reserve is created by a transfer The general reserve is a free which used from time to transfer profi of the net defi Remeasurements As per Companies Act, 2013, capital redemption reserve is created when company purchases its own shares out of free reserves or securities premium. A sum equal to the nominal of Section 52 the Companies Act, 2013. Securities premium reserve is used to record the on issue of shares. The utilised in accordance with provisions net of through other comprehensive income (FVTOCI), This reserve represents the cumulative gains and losses arising on revaluation of equity instruments measured at fair value The Company recognises profi Share-based payment reserve is used to recognise the value of equity-settled share-based payments provided employees, inclu ding key management personnel, as part their The cash fl was (the “ESOS Trust”) Employees ESOS Trust Reddy’s Pursuant to the special resolution approved by shareholders in Annual General Meeting held on 27 July 2018, Dr. Membership No.: 53315 Membership No.: Hyderabad Place : Date : 17 May 2019 As per our report of even date attached for S.R. Batliboi & Associates LLP Chartered Accountants ICAI Firm registration number: 101049W/E300004 per S Balasubrahmanyam Partner CONSOLIDATED STATEMENT OF CHANGES IN EQUITY STATEMENT CONSOLIDATED (1) (2) (3) (4) (5) (6) (7) (8) (9) (10) The accompanying notes are an integral part of the consolidated fi

Building a winning future 187 Dr. Reddy’s Laboratories Limited

CONSOLIDATED STATEMENT OF CASH FLOWS

(All amounts in Indian Rupees millions, except share data and where otherwise stated)

For the year ended For the year ended Particulars 31 March 2019 31 March 2018 Cash fl ows from/(used in) operating activities Profi t before tax 22,920 13,504 Adjustments: Depreciation and amortisation expense 11,348 10,772 Impairment loss on other intangible assets 116 53 Equity settled share-based payment expense 389 454 Fair value gain on fi nancial instruments at fair value through profi t or loss (307) (75) Profi t on sale of mutual funds, net (466) (806) Foreign exchange loss/(gain), net (1,574) (281) (Gain)/loss on sale/disposal of property , plant and equipment and other intangible assets, net (1,257) 55 Interest income (770) (540) Finance costs 889 788 Refund liability 3,592 2,702 Inventory write-downs 4,016 2,946 Allowances for credit losses, net 371 169 Allowances for doubtful advances, net 49 16 Changes in operating assets and liabilities: Trade receivables 1,797 (2,097) Inventories (8,496) (3,233) Trade payables 398 2,550 Other assets and other liabilities, net 530 (6,186) Cash generated from operations 33,545 20,791 Income tax paid, net (4,841) (2,761) Net cash from operating activities 28,704 18,030

Cash ﬂ ows from/(used in) investing activities Proceeds from sale of property, plant and equipment 1,265 139 Proceeds from sale of other intangible assets 885 - Expenditures on property, plant and equipment (6,955) (9,291) Expenditures on other intangible assets (1,421) (1,752) Purchase of investments (78,573) (68,291) Proceeds from sale of investments 76,291 64,038 Interest income received 781 274 Net cash used in investing activities (7,727) (14,883)

Cash fl ows from/(used in) fi nancing activities Proceeds from issuance of equity shares -* 1 Purchase of treasury shares (535) - Proceeds from/(repayment of) short-term loans and borrowings, net (Refer note 2.9 (h)) (15,126) (18,025) Proceeds from/(repayment of) long-term loans and borrowings, net (Refer note 2.9 (h)) (56) 18,907 Dividends paid (including corporate dividend tax) (4,002) (3,992) Interest paid (1,607) (1,331) Net cash used in fi nancing activities (21,326) (4,440)

Net decrease in cash and cash equivalents (349) (1,293) Eff ect of exchange rate changes on cash and cash equivalents 35 57 Cash and cash equivalents at the beginning of the year (Refer note 2.6 D) 2,542 3,778 Cash and cash equivalents at the end of the year (Refer note 2.6 D) 2,228 2,542 * Rounded off to millions. The accompanying notes are an integral part of the consolidated ﬁ nancial statements.

188 Company Overview Statutory Reports Financial Statements Annual Report 2018-19

Consolidated NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(All amounts in Indian Rupees millions, except share data and where otherwise stated) NOTE 1 DESCRIPTION OF THE GROUP AND SIGNIFICANT ACCOUNTING POLICIES 1.1 Description of the Group Dr. Reddy’s Laboratories Limited (the “parent company”) together with its subsidiaries and joint ventures (collectively, “the Company” or “the Group”), is a leading India-based pharmaceutical company headquartered and having its registered offi ce in Hyderabad, Telangana, India. Through its three businesses - Pharmaceutical Services and Active Ingredients, Global Generics and Proprietary Products – the Company off ers a portfolio of products and services, including Active Pharmaceutical Ingredients (“APIs”), Custom Pharmaceutical Services (“CPS”), generics, biosimilars and diff erentiated formulations.

The Company’s principal research and development facilities are located in the states of Telangana and Andhra Pradesh in India, Cambridge in the United Kingdom and Leiden in the Netherlands; its principal manufacturing facilities are located in the states of Telangana, Andhra Pradesh and Himachal Pradesh in India, Cuernavaca-Cuautla in Mexico, Mirﬁ eld in the United Kingdom, and Louisiana in the United States; and its principal markets are in India, Russia, the United States, the United Kingdom, and Germany. The Company’s shares trade on the Bombay Stock Exchange and the National Stock Exchange in India and on the New York Stock Exchange in the United States.

Please refer note 2.26 for list of subsidiaries, step-down subsidiaries and joint ventures of the parent company.

1.2 Basis of preparation of consolidated fi nancial statements a) Statement of compliance These consolidated fi nancial statements as at and for the year ended 31 March 2019 have been prepared in accordance with the Indian Accounting Standards (“Ind AS”) notifi ed under the Companies (Indian Accounting Standards) Rules 2015 and as amended from time to time. These consolidated fi nancial statements have been prepared by the Company as a going concern on the basis of relevant Ind AS that are eff ective or elected for early adoption at the Company’s annual reporting date, 31 March 2019. These consolidated financial statements were authorised for issuance by the Company’s Board of Directors on 17 May 2019. b) Basis of measurement These consolidated fi nancial statements have been prepared on the historical cost convention and on an accrual basis, except for the following material items in the balance sheet:

derivative ﬁ nancial instruments are measured at fair value;

ﬁ nancial assets are measured either at fair value or at amortised cost, depending on the classiﬁ cation;

employee defi ned benefi t assets/(liabilities) are recognised as the net total of the fair value of plan assets, adjusted for actuarial gains/(losses) and the present value of the defi ned benefi t obligation;

long-term borrowings, except obligations under ﬁ nance leases, are measured at amortised cost using the eff ective interest rate method;

assets held for sale are measured at fair value less costs to sell;

share-based payments are measured at fair value; and

investments in joint ventures are accounted for using the equity method. c) Functional and presentation currency These consolidated fi nancial statements are presented in Indian rupees, which is the functional currency of the parent company. All fi nancial information presented in Indian rupees has been rounded to the nearest million. In respect of certain non-Indian subsidiaries that operate as marketing arms of the parent company in their respective countries/regions, the functional currency has been determined to be the functional currency of the parent company (i.e., the Indian rupee). The operations of these entities are largely restricted to importing of fi nished goods from the parent company in India, sales of these products in the foreign country and making of import payments to the parent company. The cash fl ows realised from sale of goods are available for making import payments to the parent company and cash is paid to the parent company on a regular basis. The costs incurred by these entities are primarily the cost of goods imported from the parent company. The fi nancing of these subsidiaries is done directly or indirectly by the parent company. In respect of subsidiaries whose operations are self-contained and integrated within their respective countries/regions, the functional currency has been generally determined to be the local currency of those countries/regions, unless use of a diff erent currency is considered appropriate.

Building a winning future 189 Dr. Reddy’s Laboratories Limited

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(All amounts in Indian Rupees millions, except share data and where otherwise stated)

d) Use of estimates and judgements The preparation of fi nancial statements in conformity with Ind AS requires management to make judgements, estimates and assumptions that aff ect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may diff er from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimates are revised and in any future periods aff ected. In particular, information about signifi cant areas of estimation uncertainty and critical judgements in applying accounting policies that have the most signifi cant eff ect on the amounts recognised in the fi nancial statements is included in the following notes:

Note 1.2(c) — Assessment of functional currency;

Note 1.3(b) — Evaluation of joint arrangements;

Note 1.3(d) — Financial instruments;

Note 1.3(e) — Business combinations;

Notes 1.3(f) and 1.3(g) — Useful lives of property, plant and equipment and intangible assets;

Note 1.3(i) — Valuation of inventories;

Note 1.3(j) — Measurement of recoverable amounts of cash-generating units;

Note 1.3(k) — Assets and obligations relating to employee beneﬁ ts;

Note 1.3(k) — Share-based payments;

Note 1.3(l) — Provisions and other accruals;

Note 1.3(m) — Measurement of transaction price in a revenue transaction (Sales returns, rebates and chargeback provisions);

Note 1.3(o) — Evaluation of recoverability of deferred tax assets; and

Note 1.3(l) — Contingencies e) Current and non-current classifi cation All assets and liabilities have been classifi ed as current or non-current as per the Company’s normal operating cycle and other criteria set out in the Schedule III to the Companies Act, 2013 and Ind AS 1, Presentation of Financial Statements. Assets: An asset is classifi ed as current when it satisfi es any of the following criteria: a) it is expected to be realised in, or is intended for sale or consumption in, the Company’s normal operating cycle; b) it is held primarily for the purpose of being traded; c) it is expected to be realised within twelve months after the reporting date; or d) it is cash or a cash equivalent unless it is restricted from being exchanged or used to settle a liability for at least twelve months after the reporting date. Liabilities: A liability is classifi ed as current when it satisfi es any of the following criteria: a) it is expected to be settled in the Company’s normal operating cycle; b) it is held primarily for the purpose of being traded; c) it is due to be settled within twelve months after the reporting date; or d) the Company does not have an unconditional right to defer settlement of the liability for at least twelve months after the reporting date. Terms of a liability that could, at the option of the counterparty, result in its settlement by the issue of equity instruments do not aff ect its classifi cation. Current assets and liabilities include the current portion of non-current assets and liabilities respectively. All other assets and liabilities are classifi ed as non-current. Deferred tax assets and liabilities are always disclosed as non-current.

190 Company Overview Statutory Reports Financial Statements Annual Report 2018-19

Consolidated NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(All amounts in Indian Rupees millions, except share data and where otherwise stated)

1.3 Signifi cant accounting policies a) New Standards adopted by the Company Ind AS 115, Revenue from Contracts with Customers In March 2018, the Ministry of Corporate Aff airs (“MCA”) has notifi ed Ind AS 115, Revenue from Contracts with Customers, which is eff ective for accounting periods beginning on or after 1 April 2018. This comprehensive new standard supersedes Ind AS 18, Revenue, Ind AS 11, Construction contracts and related interpretations. The new standard amends revenue recognition requirements and establishes principles for reporting information about the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. The Company adopted Ind AS 115 eff ective as of 1 April 2018. The impacts of the adoption of the new standard are summarised below: Revenue The Company’s revenue is derived from sale of goods, service income and income from licensing arrangements, each as more particularly described below. Most of such revenue (approximately 97%) is generated from the sale of goods. Sale of goods Revenue from sale of goods consists of the sale of generic and branded products and the sale of active pharmaceutical ingredients and intermediates. Revenue from sale of goods is recognised where control is transferred to the Company’s customers at the time of shipment to or receipt of goods by the customers. There was no change in the point of recognition of revenue upon adoption of Ind AS 115. Service income Service income, which primarily relates to revenue from contract research, is recognised as and when the underlying services are performed. There was no change in the point of recognition of revenue upon adoption of Ind AS 115. Upfront non-refundable payments received under these arrangements continue to be deferred and are recognised over the expected period that related services are to be performed. License fees License fees primarily consist of income from the out-licensing of intellectual property, and other licensing and supply arrangements with various parties. Revenue from license fees is recognised when control transfers to the third party and the Company’s performance obligations are satisfi ed. The adoption of Ind AS 115 did not signifi cantly change the timing or amount of revenue recognised by the Company from these arrangements, nor did it change accounting for these royalty arrangements, as the standard’s royalty exception is applied for intellectual property licenses. Upfront non-refundable payments received under these arrangements continue to be deferred and are recognised over the expected period that related services are to be performed. Profi t share revenues and milestone payments Revenues from sale of goods also include revenues from profi t sharing arrangements with business partners for sales of the Company’s products in certain markets. Furthermore, the Company receives milestone payments related to out-licensing of the intellectual property. Under Ind AS 115, the profi t share amount is recognised only to the extent that it is highly probable that a signifi cant reversal in the amount of profi t share will not occur when the uncertainty associated with the profi t share is subsequently resolved. The adoption of Ind AS 115 did not signifi cantly change the timing or amount of revenue recognised by the Company under these arrangements. The Company applied the modifi ed retrospective method upon adoption of Ind AS 115 on 1 April 2018. This method requires the recognition of the cumulative eff ect of initially applying Ind AS 115 to retained earnings and not to restate prior years. Overall, the application of this standard did not have a material impact on the Company’s revenue streams from the sale of goods, service income, license fees, profi t share revenues and milestone payments, and associated rebates and sales returns provisions. b) Basis of consolidation Subsidiaries Subsidiaries are all entities (including special purpose entities) that are controlled by the Company. Control exists when the Company is exposed to, or has rights to variable returns from its involvement with the entity and has the ability to aff ect those returns through power over the entity. In assessing control, potential voting rights are considered only if the rights are substantive. The fi nancial statements of subsidiaries are included in these consolidated fi nancial statements from the date that control commences until the date that control ceases. Non-controlling interests (“NCI”) in the results and equity of subsidiaries are shown separately in the consolidated statement of profi t or loss, statement of comprehensive income, statement of changes in equity and balance sheet respectively. For the purpose of preparing these consolidated fi nancial statements, the accounting policies of subsidiaries have been changed where necessary to align them with the policies adopted by the Company.

Building a winning future 191 Dr. Reddy’s Laboratories Limited

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(All amounts in Indian Rupees millions, except share data and where otherwise stated)

Joint arrangements (equity accounted investees) Joint arrangements are those arrangements over which the Company has joint control, established by contractual agreement and requiring unanimous consent for strategic fi nancial and operating decisions. A joint arrangement is either a joint operation or a joint venture. A joint operation is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the assets, and obligations for the liabilities, relating to the arrangement. A joint venture is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the arrangement. With respect to joint operations, the Company recognises its direct right to the assets, liabilities, revenues and expenses of joint operations and its share of any jointly held or incurred assets, liabilities, revenues and expenses. Investments in joint ventures are accounted for using the equity method and are initially recognised at cost. The carrying value of the Company’s investment includes goodwill identifi ed on acquisition, net of any accumulated impairment losses. The Company does not consolidate entities where the NCI holders have certain signifi cant participating rights that provide for eff ective involvement in signifi cant decisions in the ordinary course of business of such entities. Investments in such entities are accounted by the equity method of accounting. When the Company’s share of losses exceeds its interest in an equity accounted investee, the carrying amount of that interest (including any long-term investments) is reduced to zero and the recognition of further losses is discontinued except to the extent that the Company has an obligation or has made payments on behalf of the investee. For the purpose of preparing these consolidated fi nancial statements, the accounting policies of joint ventures have been changed where necessary to align them with the policies adopted by the Company. Furthermore, the fi nancial statements of the joint ventures are prepared for the same reporting period as of the Company. Transactions eliminated on consolidation Intra-group balances and transactions, and any unrealised income and expenses arising from intra-group transactions, are eliminated in full while preparing these consolidated fi nancial statements. Unrealised gains or losses arising from transactions with equity accounted investees are eliminated against the investment to the extent of the Company’s interest in the investee. Acquisition of NCI Acquisition of some or all of the NCI is accounted for as a transaction with equity holders in their capacity as equity holders. Consequently, the diff erence arising between the fair value of the purchase consideration paid and the carrying value of the NCI is recorded as an adjustment to retained earnings that is attributable to the parent company. The associated cash fl ows are classifi ed as fi nancing activities. No goodwill is recognised as a result of such transactions. Loss of Control Upon loss of control, the Company derecognises the assets and liabilities of the subsidiary, any NCIs and the other components of equity related to the subsidiary. Any surplus or defi cit arising on the loss of control is recognised in the consolidated statement of profi t and loss. If the Company retains any interest in the previous subsidiary, then such interest is measured at fair value at the date that control is lost. Subsequently, depending on the level of infl uence retained, it is accounted for as an equity-accounted investee or as an investment measured at fair value through other comprehensive income (“FVTOCI”) or fair value through profi t and loss account (“FVTPL”), under Ind AS 109. c) Foreign currency Foreign currency transactions Transactions in foreign currencies are translated to the respective functional currencies of entities within the Company at exchange rates at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies at the reporting date are translated into the functional currency at the exchange rate at that date. Non-monetary items that are measured based on historical cost in a foreign currency are translated at the exchange rate at the date of the transaction. Non-monetary items that are measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was measured. Exchange diff erences arising on the settlement of monetary items or on translating monetary items at rates diff erent from those at which they were translated on initial recognition during the period or in previous fi nancial statements are recognised in the consolidated statement of profi t and loss in the period in which they arise. However, foreign currency diff erences arising from the translation of the following items are recognised in other comprehensive income (“OCI”):

certain debt instruments classiﬁ ed as measured at fair value through other comprehensive income;

certain equity instruments where the Company had made an irrevocable election to present in other comprehensive income subsequent changes in the fair value;

a ﬁ nancial liability designated as a hedge of the net investment in a foreign operation, to the extent that the hedge is eff ective; and

qualifying cash ﬂ ow hedges, to the extent that the hedges are eff ective.

192 Company Overview Statutory Reports Financial Statements Annual Report 2018-19

Consolidated NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(All amounts in Indian Rupees millions, except share data and where otherwise stated)

When several exchange rates are available, the rate used is that at which the future cash fl ows represented by the transaction or balance could have been settled if those cash fl ows had occurred at the measurement date. Foreign operations Foreign exchange gains and losses arising from a monetary item receivable from a foreign operation, the settlement of which is neither planned nor likely in the foreseeable future, are considered to form part of the net investment in the foreign operation and are recognised in OCI and presented within equity as a part of foreign currency translation reserve (“FCTR”). In case of foreign operations whose functional currency is diff erent from the parent company’s functional currency, the assets and liabilities of such foreign operations, including goodwill and fair value adjustments arising upon acquisition, are translated to the reporting currency at exchange rates at the reporting date. The income and expenses of such foreign operations are translated to the reporting currency at the monthly average exchange rates prevailing during the year. Resulting foreign currency diff erences are recognised in OCI and presented within equity as part of FCTR. When a foreign operation is disposed of, in part or in full, such that control, signifi cant infl uence or joint control is lost, the relevant amount in the FCTR is transferred to the consolidated statement of profi t and loss. d) Financial instruments A fi nancial instrument is any contract that gives rise to a fi nancial asset of one entity and a fi nancial liability or equity instrument of another entity. Financial assets Initial recognition and measurement All fi nancial assets are recognised initially at fair value plus, in the case of fi nancial assets not recorded at fair value through profi t or loss, transaction costs that are attributable to the acquisition of the fi nancial asset. Purchases or sales of fi nancial assets that require delivery of assets within a time frame established by regulation or convention in the market place (e.g., regular way trades) are recognised on the trade date, i.e., the date that the Company commits to purchase or sell the asset. Trade receivables are recognised initially at the amount of consideration that is unconditional unless they contain signifi cant fi nancing components, in which case they are recognised at fair value. The Company’s trade receivables do not contain any signifi cant fi nancing component and hence are measured at the transaction price measured under Ind AS 115. Subsequent measurement For purposes of subsequent measurement, fi nancial assets are classifi ed in four categories:

Debt instruments at amortised cost;

Debt instruments at FVTOCI;

Debt instruments, derivatives and equity instruments at FVTPL; and

Equity instruments measured at FVTOCI. Debt instruments at amortised cost A “debt instrument” is measured at the amortised cost if both the following conditions are met: a) the asset is held within a business model whose objective is to hold assets for collecting contractual cash fl ows; and b) contractual terms of the asset give rise on specifi ed dates to cash fl ows that are solely payments of principal and interest (SPPI) on the principal amount outstanding. After initial measurement, such fi nancial assets are subsequently measured at amortised cost using the eff ective interest rate method. Amortised cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the eff ective interest rate. The eff ective interest rate amortisation is included in other income in the consolidated statement of profi t and loss. The losses arising from impairment are recognised in the consolidated statement of profi t and loss. This category generally applies to trade and other receivables. Debt instrument at FVTOCI A “debt instrument” is classifi ed as at the FVTOCI if both of the following criteria are met: a) the objective of the business model is achieved both by collecting contractual cash fl ows and selling the fi nancial assets; and b) the asset’s contractual cash fl ows represent SPPI. Debt instruments included within the FVTOCI category are measured initially as well as at each reporting date at fair value. Fair value movements are recognised in the other comprehensive income (OCI). However, the Company recognises interest income, impairment losses and reversals and foreign exchange gain or loss in the consolidated statement of profi t and loss.

Building a winning future 193 Dr. Reddy’s Laboratories Limited

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(All amounts in Indian Rupees millions, except share data and where otherwise stated)

On derecognition of the asset, cumulative gain or loss previously recognised in OCI is reclassifi ed to the consolidated statement of profi t and loss. Interest earned while holding a FVTOCI debt instrument is reported as interest income using the eff ective interest rate method. Debt instrument at FVTPL FVTPL is a residual category for debt instruments. Any debt instrument, which does not meet the criteria for categorisation as at amortised cost or as FVTOCI, is classifi ed as at FVTPL. In addition, the Company may elect to designate a debt instrument, which otherwise meets amortised cost or FVTOCI criteria, as at FVTPL. However, such election is allowed only if doing so reduces or eliminates a measurement or recognition inconsistency (referred to as an “accounting mismatch”). Debt instruments included within the FVTPL category are measured at fair value with all changes recognised in the consolidated statement of profi t and loss. Equity investments All equity investments within the scope of Ind AS 109 are measured at fair value. Equity instruments which are held for trading and contingent consideration recognised by an acquirer in a business combination to which Ind AS103 applies, are classifi ed as at FVTPL. For all other equity instruments, the Company may make an irrevocable election to present in other comprehensive income subsequent changes in the fair value. The Company makes such election on an instrument-by-instrument basis. The classifi cation is made upon initial recognition and is irrevocable. If the Company decides to classify an equity instrument as at FVTOCI, then all fair value changes on the instrument, excluding dividends, are recognised in the OCI. There is no recycling of the amounts from OCI to the consolidated statement of profi t and loss, even on sale of investment. However, the Company may transfer the cumulative gain or loss within equity. Equity investments designated as FVTOCI are not subject to impairment assessment. Equity instruments included within the FVTPL category are measured at fair value with all changes recognised in the consolidated statement of profi t and loss. Derecognition A fi nancial asset (or, where applicable, a part of a fi nancial asset or part of a group of similar fi nancial assets) is primarily derecognised (i.e. removed from the Company’s consolidated balance sheet) when:

the rights to receive cash ﬂ ows from the asset have expired; or

Both (1) the Company has transferred its rights to receive cash fl ows from the asset or has assumed an obligation to pay the received cash fl ows in full without material delay to a third party under a “pass-through” arrangement; and (2) either (a) the Company has transferred substantially all the risks and rewards of the asset, or (b) the Company has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset. When the Company has transferred its rights to receive cash fl ows from an asset or has entered into a pass-through arrangement, it evaluates if and to what extent it has retained the risks and rewards of ownership. When it has neither transferred nor retained substantially all of the risks and rewards of the asset, nor transferred control of the asset, the Company continues to recognise the transferred asset to the extent of the Company’s continuing involvement. In that case, the Company also recognises an associated liability. The transferred asset and the associated liability are measured on a basis that refl ects the rights and obligations that the Company has retained. Impairment of trade receivables and other fi nancial assets In accordance with Ind AS 109, the Company applies the expected credit loss (ECL) model for measurement and recognition of impairment loss on trade receivables or any contractual right to receive cash or another fi nancial asset. For this purpose, the Company follows a “simplifi ed approach” for recognition of impairment loss allowance on the trade receivable balances. The application of this simplifi ed approach does not require the Company to track changes in credit risk. Rather, it recognises impairment loss allowance based on lifetime ECLs at each reporting date, right from its initial recognition. As a practical expedient, the Company uses a provision matrix to determine impairment loss allowance on portfolio of its trade receivables. The provision matrix is based on its historically observed default rates over the expected life of the trade receivables and is adjusted for forward-looking estimates. At every reporting date, the historical observed default rates are updated and changes in the forward-looking estimates are analysed.

194 Company Overview Statutory Reports Financial Statements Annual Report 2018-19

Consolidated NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(All amounts in Indian Rupees millions, except share data and where otherwise stated)

Financial liabilities Initial recognition and measurement Financial liabilities are classifi ed, at initial recognition, as fi nancial liabilities at fair value through profi t or loss, loans and borrowings, payables, or as derivatives designated as hedging instruments in an eff ective hedge, as appropriate. All fi nancial liabilities are recognised initially at fair value and, in the case of loans and borrowings and payables, net of directly attributable transaction costs. The Company’s fi nancial liabilities include trade and other payables, loans and borrowings including bank overdrafts and derivative fi nancial instruments. Subsequent measurement The measurement of fi nancial liabilities depends on their classifi cation, as described below: Financial liabilities at fair value through profi t or loss Financial liabilities at fair value through profi t or loss include fi nancial liabilities held for trading and fi nancial liabilities designated upon initial recognition as at fair value through profi t or loss. Financial liabilities are classifi ed as held for trading if they are incurred for the purpose of repurchasing in the near term. This category also includes derivative fi nancial instruments entered into by the Company that are not designated as hedging instruments in hedge relationships as defi ned by Ind AS 109. Separated embedded derivatives are also classifi ed as held for trading unless they are designated as eff ective hedging instruments. Gains or losses on liabilities held for trading are recognised in the consolidated statement of profi t and loss. Financial liabilities designated upon initial recognition at fair value through profi t or loss are designated as such at the initial date of recognition, and only if the criteria in Ind AS 109 are satisfi ed. For liabilities designated as FVTPL, fair value gains/ losses attributable to changes in own credit risk are recognised in OCI. These gains or losses are not subsequently transferred to the consolidated statement of profi t and loss. However, the Company may transfer the cumulative gain or loss within equity. All other changes in fair value of such liability are recognised in the consolidated statement of profi t and loss. The Company has not designated any fi nancial liability as fair value through profi t and loss. Loans and borrowings After initial recognition, interest-bearing loans and borrowings are subsequently measured at amortised cost using the eff ective interest rate method. Gains and losses are recognised in the consolidated statement of profi t and loss when the liabilities are derecognised as well as through the eff ective interest rate amortisation process. Amortised cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the eff ective interest rate. The eff ective interest rate amortisation is included as finance costs in the consolidated statement of profi t and loss. Derecognition A fi nancial liability is derecognised when the obligation under the liability is discharged or cancelled or expires. When an existing fi nancial liability is replaced by another from the same lender on substantially diff erent terms, or the terms of an existing liability are substantially modifi ed, such an exchange or modifi cation is treated as the derecognition of the original liability and the recognition of a new liability. The diff erence in the respective carrying amounts is recognised in the consolidated statement of profi t and loss. Derivative fi nancial instruments The Company is exposed to exchange rate risk which arises from its foreign exchange revenues and expenses, primarily in US dollars, UK pounds sterling, Russian roubles, Brazilian reals, South African rands (“ZAR”), Romanian new leus (“RON”) and Euros, and foreign currency debt in US dollars, Russian roubles, Ukrainian hryvnias and Euros. The Company uses derivative fi nancial instruments such as foreign exchange forward contracts, option contracts and swap contracts to mitigate its risk of changes in foreign currency exchange rates. The Company also uses non-derivative fi nancial instruments as part of its foreign currency exposure risk mitigation strategy. Hedges of highly probable forecasted transactions The Company classifi es its derivative fi nancial instruments that hedge foreign currency risk associated with highly probable forecasted transactions as cash fl ow hedges and measures them at fair value. The eff ective portion of such cash fl ow hedges is recorded in the Company’s hedging reserve as a component of equity and re-classifi ed to the consolidated statement of profi t and loss as part of the hedged item in the period corresponding to the occurrence of the forecasted transactions. The ineff ective portion of such cash fl ow hedges is recorded in the consolidated statement of profi t and loss as fi nance costs immediately.

Building a winning future 195 Dr. Reddy’s Laboratories Limited

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(All amounts in Indian Rupees millions, except share data and where otherwise stated)

The Company also designates certain non-derivative fi nancial liabilities, such as foreign currency borrowings from banks, as hedging instruments for hedge of foreign currency risk associated with highly probable forecasted transactions. Accordingly, the Company applies cash fl ow hedge accounting to such relationships. Remeasurement gain or loss on such non-derivative fi nancial liabilities is recorded in the Company’s hedging reserve as a component of equity and reclassifi ed to the consolidated statement of profi t and loss as part of the hedged item in the period corresponding to the occurrence of the forecasted transactions. If the hedging instrument no longer meets the criteria for hedge accounting, expires or is sold, terminated or exercised, then hedge accounting is discontinued prospectively. The cumulative gain or loss previously recognised in other comprehensive income, remains there until the forecasted transaction occurs. If the forecasted transaction is no longer expected to occur, then the balance in other comprehensive income is recognised immediately in the consolidated statement of profi t and loss. Hedges of recognised assets and liabilities Changes in the fair value of derivative contracts that economically hedge monetary assets and liabilities in foreign currencies, and for which no hedge accounting is applied, are recognised in the consolidated statement of profi t and loss. The changes in fair value of such derivative contracts, as well as the foreign exchange gains and losses relating to the monetary items, are recognised in the consolidated statement of profi t and loss. If the hedged item is derecognised, the unamortised fair value is recognised immediately in the consolidated statement of profi t and loss. Hedges of changes in the interest rates Consistent with its risk management policy, the Company uses interest rate swaps to mitigate the risk of changes in interest rates. The Company does not use them for trading or speculative purposes. Cash and cash equivalents Cash and cash equivalents consist of cash on hand, demand deposits and short-term, highly liquid investments that are readily convertible into known amounts of cash and which are subject to insignifi cant risk of changes in value. For this purpose, “short-term” means investments having original maturities of three months or less from the date of investment. Bank overdrafts that are repayable on demand form an integral part of the Company’s cash management and are included as a component of cash and cash equivalents for the purpose of the consolidated statement of cash fl ows. e) Business combinations In accordance with the provisions of Ind AS 101, First time adoption of Indian Accounting Standards, the Company has elected to apply accounting for business combinations prospectively from transition date i.e., 1 April 2015. As such, Indian GAAP balances relating to business combinations entered into before that date, including goodwill, have been carried forward. The Company uses the acquisition method of accounting to account for business combinations. The acquisition date is the date on which control is transferred to the acquirer. Judgement is applied in determining the acquisition date and determining whether control is transferred from one party to another. Control exists when the Company is exposed to, or has rights to variable returns from its involvement with the entity and has the ability to aff ect those returns through power over the entity. In assessing control, potential voting rights are considered only if the rights are substantive. The Company measures goodwill as of the applicable acquisition date at the fair value of the consideration transferred, including the recognised amount of any NCI in the acquiree, less the net recognised amount of the identifi able assets acquired and liabilities assumed. When the fair value of the net identifi able assets acquired and liabilities assumed exceeds the consideration transferred, a bargain purchase gain is recognised immediately in the OCI and accumulates the same in equity as capital reserve where there exists clear evidence of the underlying reasons for classifying the business combination as a bargain purchase else the gain is directly recognised in equity as capital reserve. Consideration transferred includes the fair values of the assets transferred, liabilities incurred by the Company to the previous owners of the acquiree, and equity interests issued by the Company. Consideration transferred also includes the fair value of any contingent consideration. Consideration transferred does not include amounts related to the settlement of pre-existing relationships. Any goodwill that arises on account of such business combination is tested annually for impairment. Any contingent consideration is measured at fair value at the date of acquisition. If an obligation to pay contingent consideration that meets the defi nition of a fi nancial instrument is classifi ed as equity, then it is not re-measured and the settlement is accounted for within equity. Otherwise, other contingent consideration is re-measured at fair value at each reporting date and subsequent changes in the fair value of the contingent consideration are recorded in the consolidated statement of profi t and loss. A contingent liability of the acquiree is assumed in a business combination only if such a liability represents a present obligation and arises from a past event, and its fair value can be measured reliably. On an acquisition-by-acquisition basis, the Company recognises any NCI in the acquiree either at fair value or at the NCI’s proportionate share of the acquiree’s identifi able net assets. Transaction costs that the Company incurs in connection with a business combination, such as fi nder’s fees, legal fees, due diligence fees and other professional and consulting fees, are expensed as incurred.

196 Company Overview Statutory Reports Financial Statements Annual Report 2018-19

Consolidated NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(All amounts in Indian Rupees millions, except share data and where otherwise stated)

f) Property, plant and equipment Recognition and measurement Items of property, plant and equipment are measured at cost less accumulated depreciation and accumulated impairment losses, if any. Cost includes expenditures that are directly attributable to the acquisition of the asset. The cost of self-constructed assets includes the cost of materials and other costs directly attributable to bringing the asset to a working condition for its intended use. Borrowing costs that are directly attributable to the construction or production of a qualifying asset are capitalised as part of the cost of that asset. When parts of an item of property, plant and equipment have diff erent useful lives, they are accounted for as separate items (major components) of property, plant and equipment. Gains and losses upon disposal of an item of property, plant and equipment are determined by comparing the proceeds from disposal with the carrying amount of property, plant and equipment and are recognised in the consolidated statement of profi t and loss. The cost of replacing part of an item of property, plant and equipment is recognised in the carrying amount of the item if it is probable that the future economic benefi ts embodied within the part will fl ow to the Company and its cost can be measured reliably. The costs of repairs and maintenance are recognised in the consolidated statement of profi t and loss as incurred. Items of property, plant and equipment acquired through exchange of non-monetary assets are measured at fair value, unless the exchange transaction lacks commercial substance or the fair value of either the asset received or asset given up is not reliably measurable, in which case the asset exchanged is recorded at the carrying amount of the asset given up. Depreciation Depreciation is recognised in the consolidated statement of profi t and loss on a straight line basis over the estimated useful lives of property, plant and equipment. Leased assets are depreciated over the shorter of the lease term and their useful lives. Land is not depreciated. Leasehold improvements are depreciated over the period of the lease agreement or the useful life, whichever is shorter. Depreciation methods, useful lives and residual values are reviewed at each reporting date. The estimated useful lives are as follows: Particulars Years Buildings - Factory and administrative buildings 20 to 50 - Ancillary structures 3 to 15 Plant and machinery 3 to 15 Furniture, fi xtures and offi ce equipment 3 to 10 Vehicles 4 to 5 Schedule II to the Companies Act, 2013 (“Schedule”) prescribes the useful lives for various classes of tangible assets. For certain class of assets, based on the technical evaluation and assessment, the Company believes that the useful lives adopted by it best represent the period over which an asset is expected to be available for use. Accordingly, for these assets, the useful lives estimated by the Company are diff erent from those prescribed in the Schedule. Software for internal use, which is primarily acquired from third-party vendors and which is an integral part of a tangible asset, including consultancy charges for implementing the software, is capitalised as part of the related tangible asset. Subsequent costs associated with maintaining such software are recognised as expense as incurred. The capitalised costs are amortised over the estimated useful life of the software or the remaining useful life of the tangible fi xed asset, whichever is lower. Advances paid towards the acquisition of property, plant and equipment outstanding at each reporting date and the cost of property, plant and equipment not ready to use before such date are disclosed as such under other non-current assets. Assets not ready for use are not depreciated but are tested for impairment.

Building a winning future 197 Dr. Reddy’s Laboratories Limited

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(All amounts in Indian Rupees millions, except share data and where otherwise stated)

g) Goodwill and other intangible assets Recognition and measurement Goodwill represents the excess of consideration transferred, together with the amount of NCI in the acquiree, over the fair value of the Company’s share of identifi able net assets acquired. Goodwill Goodwill is measured at cost less accumulated impairment losses. In respect of equity accounted investees, the carrying amount of goodwill is included in the carrying amount of the investment, and any impairment loss on such an investment is not allocated to any asset, including goodwill, that forms part of the carrying value of the equity accounted investee. Other intangible Other intangible assets that are acquired by the Company and that have fi nite useful lives are measured at cost less assets accumulated amortisation and accumulated impairment losses. Expenditures on research activities undertaken with the prospect of gaining new scientifi c or technical knowledge and understanding are recognised in the consolidated statement of profi t and loss when incurred. Development activities involve a plan or design for the production of new or substantially improved products and processes. Development expenditures are capitalised only if: development costs can be measured reliably; Research and the product or process is technically and commercially feasible; development future economic benefi ts are probable; and the Company intends to, and has suffi cient resources to complete development and to use or sell the asset. The expenditures to be capitalised include the cost of materials and other costs directly attributable to preparing the asset for its intended use. Other development expenditures are recognised in the consolidated statement of profi t and loss as incurred. As of 31 March 2019, none of the development expenditure amounts has met the aforesaid recognition criteria. Payments to third parties that generally take the form of up-front payments and milestones for in-licensed products, compounds and intellectual property are capitalised. The Company’s criteria for capitalisation of such assets are Separate acquisition consistent with the guidance given in paragraph 25 of Indian Accounting Standard 38 (“Ind AS 38”) (i.e., the receipt of intangible assets of economic benefi ts embodied in each intangible asset separately purchased or licensed in the transaction is considered to be probable). In-Process Research Acquired research and development intangible assets that are under development are recognised as In-Process and Development Research and Development assets (“IPR&D”) or Intangible assets under development. IPR&D assets are not amortised, assets (“IPR&D”) or but evaluated for potential impairment on an annual basis or when there are indications that the carrying value may Intangible assets not be recoverable. Any impairment charge on such IPR&D assets is recorded in the consolidated statement of profi t under development and loss. Subsequent expenditure Subsequent expenditures are capitalised only when they increase the future economic benefi ts embodied in the Other intangible specifi c asset to which they relate. All other expenditures, including expenditures on internally generated goodwill assets and brands, is recognised in the consolidated statement of profi t and loss as incurred. Subsequent expenditure on an IPR&D project acquired separately or in a business combination and recognised as In-Process Research an intangible asset is: and Development recognised as an expense when incurred, if it is a research expenditure; assets (“IPR&D”) or recognised as an expense when incurred, if it is a development expenditure that does not satisfy the criteria for Intangible assets recognition as an intangible asset in paragraph 57 of Ind AS 38; and under development added to the carrying amount of the acquired in-process research or development project, if it is a development expenditure that satisfi es the recognition criteria in paragraph 57 of Ind AS 38.

Amortisation Amortisation is recognised in the consolidated statement of proﬁ t and loss on a straight-line basis over the estimated useful lives of intangible assets. Intangible assets that are not available for use are amortised from the date they are available for use. The estimated useful lives are as follows: Particulars Years Product related intangibles 3 to 15 Customer related intangibles 1 to 11 Other intangibles 3 to 15

The amortisation period and the amortisation method for intangible assets with a ﬁ nite useful life are reviewed at each reporting date.

198 Company Overview Statutory Reports Financial Statements Annual Report 2018-19

Consolidated NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(All amounts in Indian Rupees millions, except share data and where otherwise stated)

Goodwill, intangible assets relating to products in development, other intangible assets not available for use and intangible assets having indefi nite useful life are subject to impairment testing at each reporting date. All other intangible assets are tested for impairment when there are indications that the carrying value may not be recoverable. All impairment losses are recognised immediately in the consolidated statement of profi t and loss. De-recognition of intangible assets Intangible assets are de-recognised either on their disposal or where no future economic benefi ts are expected from their use. Losses arising on such de-recognition are recorded in the consolidated statement of profi t and loss, and are measured as the diff erence between the net disposal proceeds, if any, and the carrying amount of respective intangible assets as at the date of de-recognition. h) Leases At the inception of each lease, the lease arrangement is classifi ed as either a fi nance lease or an operating lease, based on the substance of the lease arrangement. Finance leases A fi nance lease is recognised as an asset and a liability at the commencement of the lease, at the lower of the fair value of the asset and the present value of the minimum lease payments. Initial direct costs, if any, are also capitalised and, subsequent to initial recognition, the asset is accounted for in accordance with the accounting policy applicable to that asset. Minimum lease payments made under fi nance leases are apportioned between the fi nance expense and the reduction of the outstanding lease liability. The fi nance expense is allocated to each period during the lease term so as to produce a constant periodic rate of interest on the remaining balance of the liability. Operating leases Other leases are operating leases, and the leased assets are not recognised on the Company’s consolidated balance sheet. Payments made under operating leases are recognised in the consolidated statement of profi t and loss on a straight-line basis over the term of the lease. Operating lease incentives received from the landlord are recognised as a reduction of rental expense on a straight line basis over the lease term. i) Inventories Inventories consist of raw materials, stores and spares, work-in-progress and fi nished goods and are measured at the lower of cost and net realisable value. The cost of all categories of inventories is based on the weighted average method. Cost includes expenditures incurred in acquiring the inventories, production or conversion costs and other costs incurred in bringing them to their existing location and condition. In the case of fi nished goods and work-in-progress, cost includes an appropriate share of overheads based on normal operating capacity. Stores and spares consists of packing materials, engineering spares (such as machinery spare parts) and consumables (such as lubricants, cotton waste and oils), which are used in operating machines or consumed as indirect materials in the manufacturing process. Net realisable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and selling expenses. The factors that the Company considers in determining the provision for slow moving, obsolete and other non-saleable inventory include estimated shelf life, planned product discontinuances, price changes, ageing of inventory and introduction of competitive new products, to the extent each of these factors impact the Company’s business and markets. The Company considers all these factors and adjusts the inventory provision to refl ect its actual experience on a periodic basis. j) Impairment Non-fi nancial assets The carrying amounts of the Company’s non-fi nancial assets, other than inventories and deferred tax assets are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, then the asset’s recoverable amount is estimated. For goodwill and intangible assets that have indefi nite lives or that are not yet available for use, an impairment test is performed each year at 31 March. The recoverable amount of an asset or cash-generating unit (as defi ned below) is the greater of its value in use and its fair value less costs to sell. In assessing value in use, the estimated future cash fl ows are discounted to their present value using a pre-tax discount rate that refl ects current market assessments of the time value of money and the risks specifi c to the asset or the cash-generating unit. For the purpose of impairment testing, assets are grouped together into the smallest group of assets that generate cash infl ows from continuing use that are largely independent of the cash infl ows of other assets or groups of assets (the “cash-generating unit”).

Building a winning future 199 Dr. Reddy’s Laboratories Limited

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(All amounts in Indian Rupees millions, except share data and where otherwise stated)

The goodwill acquired in a business combination is, for the purpose of impairment testing, allocated to cash-generating units that are expected to benefi t from the synergies of the combination. An impairment loss is recognised in the consolidated statement of profi t and loss if the estimated recoverable amount of an asset or its cash-generating unit is lower than its carrying amount. Impairment losses recognised in respect of cash-generating units are allocated fi rst to reduce the carrying amount of any goodwill allocated to the units and then to reduce the carrying amount of the other assets in the unit on a pro-rata basis. An impairment loss in respect of goodwill is not reversed. In respect of other assets, impairment losses recognised in prior periods are assessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised. Goodwill that forms part of the carrying amount of an investment in an associate is not recognised separately, and therefore is not tested for impairment separately. Instead, the entire amount of the investment in an associate is tested for impairment as a single asset when there is objective evidence that the investment in an associate may be impaired. An impairment loss in respect of equity accounted investee is measured by comparing the recoverable amount of investment with its carrying amount. An impairment loss is recognised in the consolidated statement of profi t and loss, and reversed if there has been a favourable change in the estimates used to determine the recoverable amount. k) Employee benefi ts Short-term employee benefi ts Short-term employee benefi ts are expensed as the related service is provided. A liability is recognised for the amount expected to be paid if the Company has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee and the obligation can be estimated reliably. Defi ned contribution plans The Company’s contributions to defi ned contribution plans are charged to the consolidated statement of profi t and loss as and when the services are received from the employees. Defi ned benefi t plans The liability in respect of defi ned benefi t plans and other post-employment benefi ts is calculated using the projected unit credit method consistent with the advice of qualifi ed actuaries. The present value of the defi ned benefi t obligation is determined by discounting the estimated future cash outfl ows using interest rates of high-quality corporate bonds that are denominated in the currency in which the benefi ts will be paid, and that have terms to maturity approximating to the terms of the related defi ned benefi t obligation. In countries where there is no deep market in such bonds, the market interest rates on government bonds are used. The current service cost of the defi ned benefi t plan, recognised in the consolidated statement of profi t and loss in employee benefi t expense, refl ects the increase in the defi ned benefi t obligation resulting from employee service in the current year, benefi t changes, curtailments and settlements. Past service costs are recognised immediately in the consolidated statement of profi t and loss. The net interest cost is calculated by applying the discount rate to the net balance of the defi ned benefi t obligation and the fair value of plan assets. This cost is included in employee benefi t expense in the consolidated statement of profi t and loss. Actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions are recognised in OCI in the period in which they arise. When the benefi ts under a plan are changed or when a plan is curtailed, the resulting change in benefi t that relates to past service or the gain or loss on curtailment is recognised immediately in the consolidated statement of profi t and loss. The Company recognises gains or losses on the settlement of a defi ned benefi t plan obligation when the settlement occurs. Termination benefi ts Termination benefi ts are recognised as an expense in the consolidated statement of profi t and loss when the Company is demonstrably committed, without realistic possibility of withdrawal, to a formal detailed plan to either terminate employment before the normal retirement date, or to provide termination benefi ts as a result of an off er made to encourage voluntary redundancy. Termination benefi ts for voluntary redundancies are recognised as an expense in the consolidated statement of profi t and loss if the Company has made an off er encouraging voluntary redundancy, it is probable that the off er will be accepted, and the number of acceptances can be estimated reliably. Other long-term employee benefi ts The Company’s net obligation in respect of other long-term employee benefi ts is the amount of future benefi t that employees have earned in return for their service in the current and previous periods. That benefi t is discounted to determine its present value. Re-measurements are recognised in the consolidated statement of profi t and loss in the period in which they arise.

200 Company Overview Statutory Reports Financial Statements Annual Report 2018-19

Consolidated NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(All amounts in Indian Rupees millions, except share data and where otherwise stated)

Compensated absences The Company’s current policies permit certain categories of its employees to accumulate and carry forward a portion of their unutilised compensated absences and utilise them in future periods or receive cash in lieu thereof in accordance with the terms of such policies. The Company measures the expected cost of accumulating compensated absences as the additional amount that the Company incurs as a result of the unused entitlement that has accumulated at the reporting date. Such measurement is based on actuarial valuation as at the reporting date carried out by a qualifi ed actuary. Equity settled share-based payment transactions The grant date fair value of options granted to employees is recognised as an employee expense in the consolidated statement of profi t and loss, with a corresponding increase in equity, over the period that the employees become unconditionally entitled to the options. The amount recognised as an expense is adjusted to refl ect the number of awards for which the related service and performance conditions are expected to be met, such that the amount ultimately recognised is based on the number of awards that meet the related service and performance conditions at the vesting date. The expense is recorded for each separately vesting portion of the award as if the award was, in substance, multiple awards. The increase in equity recognised in connection with share-based payment transaction is presented as a separate component in equity under “share-based payment reserve”. The amount recognised as an expense is adjusted to refl ect the actual number of stock options that vest. Cash settled share-based payment transactions The fair value of the amount payable to employees in respect of share-based payment transactions which are settled in cash is recognised as an expense, with a corresponding increase in liabilities, over the period during which the employees become unconditionally entitled to payment. The liability is re-measured at each reporting date and at the settlement date based on the fair value of the share-based payment transaction. Any changes in the liability are recognised in the consolidated statement of profi t and loss. l) Provisions A provision is recognised in the consolidated statement of profi t and loss if, as a result of a past event, the Company has a present legal or constructive obligation that can be estimated reliably, and it is probable that an outfl ow of economic benefi ts will be required to settle the obligation. If the eff ect of the time value of money is material, provisions are determined by discounting the expected future cash fl ows at a pre-tax rate that refl ects current market assessments of the time value of money and the risks specifi c to the liability. Where discounting is used, the increase in the provision due to the passage of time is recognised as a fi nance cost. Restructuring A provision for restructuring is recognised in the consolidated statement of profi t and loss when the Company has approved a detailed and formal restructuring plan, and the restructuring either has commenced or has been announced publicly. Future operating costs are not provided. Onerous contracts A provision for onerous contracts is recognised in the consolidated statement of profi t and loss when the expected benefi ts to be derived by the Company from a contract are lower than the unavoidable cost of meeting its obligations under the contract. The provision is measured at the present value of the lower of the expected cost of terminating the contract and the expected net cost of continuing with the contract. Before a provision is established, the Company recognises any impairment loss on the assets associated with that contract. Reimbursement rights Expected reimbursements for expenditures required to settle a provision are recognised in the consolidate statement of profi t and loss only when receipt of such reimbursements is virtually certain. Such reimbursements are recognised as a separate asset in the balance sheet, with a corresponding credit to the specifi c expense for which the provision has been made. Contingent liabilities and contingent assets A disclosure for a contingent liability is made when there is a possible obligation or a present obligation that may, but probably will not, require an outfl ow of resources. Where there is a possible obligation or a present obligation in respect of which the likelihood of outfl ow of resources is remote, no provision or disclosure is made. Contingent assets are not recognised in the consolidated fi nancial statements. A contingent asset is disclosed where an infl ow of economic benefi ts is probable. Contingent assets are assessed continually and, if it is virtually certain that an infl ow of economic benefi ts will arise, the asset and related income are recognised in the period in which the change occurs.

Building a winning future 201 Dr. Reddy’s Laboratories Limited

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(All amounts in Indian Rupees millions, except share data and where otherwise stated)

m) Revenue The Company’s revenue is derived from sales of goods, service income and income from licensing arrangements. Most of such revenue is generated from the sale of goods. Accounting policies relating to revenue for the periods after 31 March 2018 are as follows: Sale of goods Revenue is recognised when the control of the goods has been transferred to a third party. This is usually when the title passes to the customer, either upon shipment or upon receipt of goods by the customer. At that point, the customer has full discretion over the channel and price to sell the products, and there are no unfulfi lled obligations that could aff ect the customer’s acceptance of the product. Revenue from the sale of goods is measured at the transaction price which is the consideration received or receivable, net of returns, taxes and applicable trade discounts and allowances. Revenue includes shipping and handling costs billed to the customer. In arriving at the transaction price, the Company considers the terms of the contract with the customers and its customary business practices. The transaction price is the amount of consideration the Company is entitled to receive in exchange for transferring promised goods or services, excluding amounts collected on behalf of third parties. The amount of consideration varies because of estimated rebates, returns and chargebacks, which are considered to be key estimates. Any amount of variable consideration is recognised as revenue only to the extent that it is highly probable that a signifi cant reversal will not occur. The Company estimates the amount of variable consideration using the expected value method. Presented below are the points of recognition of revenue with respect to the Company’s sale of goods: Particulars Point of recognition of revenue Upon delivery of products to distributors by clearing and forwarding agents of the Company. Sales of generic products in India Control over the generic products is transferred by the Company when the goods are delivered to distributors from clearing and forwarding agents. Sales of active pharmaceutical Upon delivery of products to customers (generally formulation manufacturers), from the factories ingredients and intermediates in India of the Company. Upon delivery of the products to the customers unless the terms of the applicable contract provide Export sales and other sales outside for specifi c revenue generating activities to be completed, in which case revenue is recognised of India once all such activities are completed. Profi t share revenues The Company from time to time enters into marketing arrangements with certain business partners for the sale of its products in certain markets. Under such arrangements, the Company sells its products to the business partners at a non-refundable base purchase price agreed upon in the arrangement and is also entitled to a profi t share which is over and above the base purchase price. The profi t share is typically dependent on the business partner’s ultimate net sale proceeds or net profi ts, subject to any reductions or adjustments that are required by the terms of the arrangement. Such arrangements typically require the business partner to provide confi rmation of units sold and net sales or net profi t computations for the products covered under the arrangement. Revenue in an amount equal to the base purchase price is recognised in these transactions upon delivery of products to the business partners. An additional amount representing the profi t share component is recognised as revenue only to the extent that it is highly probable that a signifi cant reversal will not occur. At the end of each reporting period, the Company updates the estimated transaction price (including updating its assessment of whether an estimate of variable consideration is constrained) to represent faithfully the circumstances present at the end of the reporting period and the changes in circumstances during the reporting period. Out licensing arrangements, milestone payments and royalties Revenues include amounts derived from product out-licensing agreements. These arrangements typically consist of an initial up-front payment on inception of the license and subsequent payments dependent on achieving certain milestones in accordance with the terms prescribed in the agreement. In cases where the transaction has two or more components, the Company accounts for the delivered item (for example, the transfer of title to the intangible asset) as a separate unit of accounting and record revenue upon delivery of that component, provided that the Company can make a reasonable estimate of the fair value of the undelivered component. Otherwise, non-refundable up-front license fees received in connection with product out-licensing agreements are deferred and recognised over the period in which the Company has pending performance obligations. Milestone payments which are contingent on achieving certain clinical milestones are recognised as revenues either on achievement of such milestones, over the performance period depending on the terms of the contract. If milestone payments are creditable against future royalty payments, the milestones are deferred and released over the period in which the royalties are anticipated to be paid. Royalty income earned through a license is recognised when the underlying sales have occurred.

202 Company Overview Statutory Reports Financial Statements Annual Report 2018-19

Consolidated NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(All amounts in Indian Rupees millions, except share data and where otherwise stated)

Provision for chargeback, rebates and discounts Provisions for chargeback, rebates, discounts and Medicaid payments are estimated and provided for in the year of sales and recorded as reduction of revenue. A chargeback claim is a claim made by the wholesaler for the diff erence between the price at which the product is initially invoiced to the wholesaler and the net price at which it is agreed to be procured from the Company. Provisions for such chargebacks are accrued and estimated based on historical average chargeback rate actually claimed over a period of time, current contract prices with wholesalers/other customers and estimated inventory holding by the wholesaler. Shelf stock adjustments Shelf stock adjustments are credits issued to customers to refl ect decreases in the selling price of products sold by the Company, and are accrued when the prices of certain products decline as a result of increased competition upon the expiration of limited competition or exclusivity periods. These credits are customary in the pharmaceutical industry, and are intended to reduce the customer inventory cost to better refl ect the current market prices. The determination to grant a shelf stock adjustment to a customer is based on the terms of the applicable contract, which may or may not specifi cally limit the age of the stock on which a credit would be off ered. Sales Returns The Company accounts for sales returns accrual by recording refund liability concurrent with the recognition of revenue at the time of a product sale. This liability is based on the Company’s estimate of expected sales returns. The Company deals in various products and operates in various markets. Accordingly, the estimate of sales returns is determined primarily by the Company’s historical experience in the markets in which the Company operates. With respect to established products, the Company considers its historical experience of sales returns, levels of inventory in the distribution channel, estimated shelf life, product discontinuances, price changes of competitive products, and the introduction of competitive new products, to the extent each of these factors impact the Company’s business and markets. With respect to new products introduced by the Company, such products have historically been either extensions of an existing line of product where the Company has historical experience or in therapeutic categories where established products exist and are sold either by the Company or the Company’s competitors. At the time of recognising the refund liability, the Company also recognises an asset, (i.e., the right to the returned goods) which is included in inventories for the products expected to be returned. The Company initially measures this asset at the former carrying amount of the inventory, less any expected costs to recover the goods, including any potential decreases in the value of the returned goods. Along with re-measuring the refund liability at the end of each reporting period, the Company updates the measurement of the asset recorded for any revisions to its expected level of returns, as well as any additional decreases in the value of the returned products. Services Revenue from services rendered, which primarily relate to contract research, is recognised in the consolidated statement of profi t and loss as the underlying services are performed. Upfront non-refundable payments received under these arrangements are deferred and recognised as revenue over the expected period over which the related services are expected to be performed. License fees License fees primarily consist of income from the out-licensing of intellectual property, and other licensing and supply arrangements with various parties. Revenue from license fees is recognised when control transfers to the third party and the Company’s performance obligations are satisfi ed. Some of these arrangements include certain performance obligations by the Company. Revenue from such arrangements is recognised in the period in which the Company completes all its performance obligations. Accounting policies relating to revenue for periods ending on or prior to 31 March 2018 are as follows: Sale of goods Revenue is recognised when the signifi cant risks and rewards of ownership have been transferred to the buyer, recovery of the consideration is probable, the associated costs and possible return of goods can be estimated reliably, there is no continuing management involvement with the goods and the amount of revenue can be measured reliably. Revenue from the sale of goods includes relevant taxes and is measured at the fair value of the consideration received or receivable, net of returns, sales tax and applicable trade discounts and allowances. Revenue includes shipping and handling costs billed to the customer. Revenue from sales of generic products in India is recognised upon delivery of products to distributors by clearing and forwarding agents of the Company. Signifi cant risks and rewards in respect of ownership of generic products are transferred by the Company when the goods are delivered to distributors from clearing and forwarding agents. Clearing and forwarding agents are generally compensated on a commission basis as a percentage of sales made by them. Revenue from sales of active pharmaceutical ingredients and intermediates in India is recognised upon delivery of products to customers (generally formulation manufacturers), from the factories of the Company. Revenue from export sales and other sales outside of India is recognised when the signifi cant risks and rewards of ownership of products are transferred to the customers. Such transfer occurs upon delivery of the products to the customers unless the terms of the applicable contract provide for specifi c revenue generating activities to be completed, in which case revenue is recognised once all such activities are completed.

Building a winning future 203 Dr. Reddy’s Laboratories Limited

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(All amounts in Indian Rupees millions, except share data and where otherwise stated)

Profi t share revenues The Company from time to time enters into marketing arrangements with certain business partners for the sale of its products in certain markets. Under such arrangements, the Company sells its products to the business partners at a non-refundable base purchase price agreed upon in the arrangement and is also entitled to a profi t share which is over and above the base purchase price. The profi t share is typically dependent on the business partner’s ultimate net sale proceeds or net profi ts, subject to any reductions or adjustments that are required by the terms of the arrangement. Such arrangements typically require the business partner to provide confi rmation of units sold and net sales or net profi t computations for the products covered under the arrangement. Revenue in an amount equal to the base purchase price is recognised in these transactions upon delivery of products to the business partners. An additional amount representing the profi t share component is recognised as revenue in the period which corresponds to the ultimate sales of the products made by business partners only when the collectability of the profi t share becomes probable and a reliable measurement of the profi t share is available. Otherwise, recognition is deferred to a subsequent period pending satisfaction of such collectability and measurability requirements. In measuring the amount of profi t share revenue to be recognised for each period, the Company uses all available information and evidence, including any confi rmations from the business partner of the profi t share amount owed to the Company, to the extent made available before the date the Company’s Board of Directors authorises the issuance of its fi nancial statements for the applicable period. Milestone payments and out licensing arrangements Revenues include amounts derived from product out-licensing agreements. These arrangements typically consist of an initial up-front payment on inception of the license and subsequent payments dependent on achieving certain milestones in accordance with the terms prescribed in the agreement. Non-refundable up-front license fees received in connection with product out-licensing agreements are deferred and recognised over the period in which the Company has continuing performance obligations. Milestone payments which are contingent on achieving certain clinical milestones are recognised as revenues either on achievement of such milestones, if the milestones are considered substantive, or over the period the Company has continuing performance obligations, if the milestones are not considered substantive. If milestone payments are creditable against future royalty payments, the milestones are deferred and released over the period in which the royalties are anticipated to be paid. Provision for chargeback, rebates and discounts Provisions for chargeback, rebates, discounts and Medicaid payments are estimated and provided for in the year of sales and recorded as reduction of revenue. A chargeback claim is a claim made by the wholesaler for the diff erence between the price at which the product is initially invoiced to the wholesaler and the net price at which it is agreed to be procured from the Company. Provisions for such chargebacks are accrued and estimated based on historical average chargeback rate actually claimed over a period of time, current contract prices with wholesalers and other customers and estimated inventory holding by the wholesaler. Shelf stock adjustments Shelf stock adjustments are credits issued to customers to refl ect decreases in the selling price of products sold by the Company, and are accrued when the prices of certain products decline as a result of increased competition upon the expiration of limited competition or exclusivity periods. These credits are customary in the pharmaceutical industry, and are intended to reduce the customer inventory cost to better refl ect the current market prices. The determination to grant a shelf stock adjustment to a customer is based on the terms of the applicable contract, which may or may not specifi cally limit the age of the stock on which a credit would be off ered. Sales Returns The Company accounts for sales returns accrual by recording an allowance for sales returns concurrently with the recognition of revenue at the time of a product sale. This allowance is based on the Company’s estimate of expected sales returns. The Company deals in various products and operates in various markets. Accordingly, the estimate of sales returns is determined primarily by the Company’s historical experience in the markets in which the Company operates. With respect to established products, the Company considers its historical experience of sales returns, levels of inventory in the distribution channel, estimated shelf life, product discontinuances, price changes of competitive products, and the introduction of competitive new products, to the extent each of these factors impact the Company’s business and markets. With respect to new products introduced by the Company, such products have historically been either extensions of an existing line of product where the Company has historical experience or in therapeutic categories where established products exist and are sold either by the Company or the Company’s competitors. Services Revenue from services rendered, which primarily relate to contract research, is recognised in the consolidated statement of profi t and loss as the underlying services are performed. Upfront non-refundable payments received under these arrangements are deferred and recognised as revenue over the expected period over which the related services are expected to be performed. Export entitlements Export entitlements from government authorities are recognised in the consolidated statement of profi t and loss as a reduction from “Cost of material consumed” when the right to receive credit as per the terms of the scheme is established in respect of the exports made by the Company, and where there is no signifi cant uncertainty regarding the ultimate collection of the relevant export proceeds.

204 Company Overview Statutory Reports Financial Statements Annual Report 2018-19

Consolidated NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(All amounts in Indian Rupees millions, except share data and where otherwise stated)

License fee The Company from time to time enters into certain dossier sales, licensing and supply arrangements with various parties. Income from licensing arrangements is generally recognised over the term of the contract. Some of these arrangements include certain performance obligations by the Company. Revenue from such arrangements is recognised in the period in which the Company completes all its performance obligations. Shipping and handling costs Shipping and handling costs incurred to transport products to customers, and internal transfer costs incurred to transport the products from the Company’s factories to its various points of sale, are included in selling and other expenses. n) Other income and fi nance cost Other income consists of interest income on funds invested, dividend income and gains on the disposal of assets. Interest income is recognised in the consolidated statement of profi t and loss as it accrues, using the eff ective interest method. Dividend income is recognised in the consolidated statement of profi t and loss on the date that the Company’s right to receive payment is established. The associated cash fl ows are classifi ed as investing activities in the consolidated statement of cash fl ows. Finance expenses consist of interest expense on loans and borrowings. Borrowing costs are recognised in the consolidated statement of profi t and loss using the eff ective interest method. The associated cash fl ows are classifi ed as fi nancing activities in the consolidated statement of cash fl ows. Foreign currency gains and losses are reported on a net basis within other income and / or selling and other expenses. These primarily include: exchange diff erences arising on the settlement or translation of monetary items; changes in the fair value of derivative contracts that economically hedge monetary assets and liabilities in foreign currencies and for which no hedge accounting is applied; and the ineff ective portion of cash flow hedges. o) Income tax Income tax expense consists of current and deferred tax. Income tax expense is recognised in the consolidated statement of profi t and loss except to the extent that it relates to items recognised directly in equity, in which case it is recognised in equity. Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the reporting date, and any adjustment to tax payable in respect of previous years. Deferred tax is recognised using the balance sheet method, providing for temporary diff erences between the carrying amounts of assets and liabilities for fi nancial reporting purposes and the amounts used for taxation purposes. Deferred tax is not recognised for the following temporary diff erences:

temporary diff erences on the initial recognition of assets or liabilities in a transaction that is not a business combination and that aff ects neither accounting nor taxable proﬁ t;

temporary diff erences relating to investments in subsidiaries and jointly controlled entities to the extent that it is probable that they will not reverse in the foreseeable future; and

Building a winning future 205 Dr. Reddy’s Laboratories Limited

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(All amounts in Indian Rupees millions, except share data and where otherwise stated)

p) Earnings per share The Company presents basic and diluted earnings per share (“EPS”) data for its ordinary shares. Basic EPS is calculated by dividing the profi t or loss attributable to ordinary shareholders of the Company by the weighted average number of ordinary shares outstanding during the period. Diluted EPS is determined by adjusting the profi t or loss attributable to ordinary shareholders and the weighted average number of ordinary shares outstanding for the eff ects of all dilutive potential ordinary shares, which includes all stock options granted to employees. q) Government grants The Company recognises government grants only when there is reasonable assurance that the conditions attached to them will be complied with, and the grants will be received. Government grants received in relation to assets are presented as a reduction to the carrying amount of the related asset. Grants related to income are deducted in reporting the related expense in the consolidated statement of profi t and loss. Export entitlements from government authorities are recognised in the consolidated statement of profi t and loss as a reduction from “Cost of materials consumed” when the right to receive credit as per the terms of the scheme is established in respect of the exports made by the Company, and where there is no signifi cant uncertainty regarding the ultimate collection of the relevant export proceeds. r) Segment reporting Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision maker. The chief executive offi cer of the Company is responsible for allocating resources and assessing performance of the operating segments and accordingly is identifi ed as the chief operating decision maker. s) Treasury shares Own equity instruments that are reacquired (treasury shares) are recognised at cost and deducted from equity. No gain or loss is recognised in profi t or loss on the purchase, sale, issue or cancellation of the Company’s own equity instruments. Any diff erence between the carrying amount and the consideration, if reissued, is recognised in the securities premium. t) Recent accounting pronouncements Standards issued but not yet eff ective and not early adopted by the Company Ind AS 116, Leases On 30 March 2019, the Ministry of Corporate Aff airs (MCA) notifi ed Ind AS 116, Leases as part of the Companies (Indian Accounting Standards (Ind AS)) Amendment Rules, 2019. Ind AS 116 replaces existing standard on leases i.e. Ind AS 17, Leases with eff ect from accounting periods beginning on or after 1 April 2019. Upon adoption, a portion of the annual operating lease expense will be recognised as fi nance expense. Further, a portion of the annual lease payments recognised in the consolidated statement of cash fl ow as reduction of lease liability will be recognised as outfl ow from fi nancing activities, which are currently fully recognised as an outfl ow from operating activities. The undiscounted and non-cancellable operating lease commitments of ` 1,291 and ` 1,929 as at 31 March 2019 and 31 March 2018, respectively, as disclosed in note 2.30 to these consolidated fi nancial statements, provide an indicator of the impact of implementation of Ind AS 116 on the consolidated fi nancial statements of the Company. Accordingly, the Company believes that the adoption of Ind AS 116 will not have a material impact on its consolidated fi nancial statements. Appendix C, Uncertainty over Income Tax Treatments, to Ind AS 12, Income Taxes On 30 March 2019, the Ministry of Corporate Aff airs (MCA) made certain amendments to Ind AS 12, Income taxes by including Appendix C, Uncertainty over Income Tax Treatments. This appendix clarifi es how the recognition and measurement requirements of Ind AS 12 are applied where there is uncertainty over income tax treatments. Appendix C explains how to recognise and measure deferred and current income tax assets and liabilities where there is uncertainty over a tax treatment. An uncertain tax treatment is any tax treatment applied by an entity where there is uncertainty over whether that treatment will be accepted by the applicable tax authority. For example, a decision to claim a deduction for a specifi c expense or not to include a specifi c item of income in a tax return is an uncertain tax treatment if its acceptability is uncertain under applicable tax law. The amendment provides specifi c guidance in several areas where previously Ind AS 12 was silent. Appendix C applies to all aspects of income tax accounting where there is an uncertainty regarding the treatment of an item, including taxable profi t or loss, the tax bases of assets and liabilities, tax losses and credits and tax rates.

206 Company Overview Statutory Reports Financial Statements Annual Report 2018-19

Consolidated NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(All amounts in Indian Rupees millions, except share data and where otherwise stated)

The amendment is eff ective for annual reporting periods beginning on or after 1 April 2019. An entity can, on initial application, elect to apply this amendment either:

retrospectively applying Ind AS 8, Accounting Policies, Changes in Accounting Estimates and Errors, if possible without the use of hindsight; or

retrospectively, with the cumulative eff ect of initially applying the interpretation recognised at the date of initial application as an adjustment to the opening balance of retained earnings (or other component of equity, as appropriate). The Company believes that the adoption of amendments to Ind AS 12 in the form of Appendix C will not have a material impact on its consolidated fi nancial statements. u) Rounding of amounts All amounts disclosed in the consolidated fi nancial statements and notes have been rounded off to the nearest million currency units unless otherwise stated. 1.4 Determination of fair values The Company’s accounting policies and disclosures require the determination of fair value, for certain fi nancial and non-fi nancial assets and liabilities. Fair values have been determined for measurement and/or disclosure purposes based on the following methods. When applicable, further information about the assumptions made in determining fair values is disclosed in the notes specifi c to that asset or liability. a) Property, plant and equipment Property, plant and equipment, if acquired in a business combination or through an exchange of non-monetary assets, is measured at fair value on the acquisition date. For this purpose, fair value is based on appraised market values and replacement cost. b) Intangible assets The fair value of brands, technology related intangibles, and patents and trademarks acquired in a business combination is based on the discounted estimated royalty payments that have been avoided as a result of these brands, technology related intangibles, patents or trademarks being owned (the “relief of royalty method”). The fair value of customer related, product related and other intangibles acquired in a business combination has been determined using the multi-period excess earnings method. Under this method, value is estimated as the present value of the benefi ts anticipated from ownership of the intangible assets in excess of the returns required or the investment in the contributory assets necessary to realise those benefi ts. c) Inventories The fair value of inventories acquired in a business combination is determined based on its estimated selling price in the ordinary course of business less the estimated costs of completion and sale, and a reasonable profi t margin based on the eff ort required to complete and sell the inventories. d) Investments in equity and debt securities and units of mutual funds The fair value of marketable equity and debt securities is determined by reference to their quoted market price at the reporting date. For debt securities where quoted market prices are not available, fair value is determined using pricing techniques such as discounted cash fl ow analysis. In respect of investments in mutual funds, the fair values represent net asset value as stated by the issuers of these mutual fund units in the published statements. Net asset values represent the price at which the issuer will issue further units in the mutual fund and the price at which issuers will redeem such units from the investors. Accordingly, such net asset values are analogous to fair market value with respect to these investments, as transactions of these mutual funds are carried out at such prices between investors and the issuers of these units of mutual funds. e) Derivatives The fair value of foreign exchange forward contracts is estimated by discounting the diff erence between the contractual forward price and the current forward price for the residual maturity of the contract using a risk-free interest rate (based on government bonds). The fair value of foreign currency option and swap contracts and interest rate swap contracts is determined based on the appropriate valuation techniques, considering the terms of the contract. f) Non-derivative fi nancial liabilities Fair value, which is determined for disclosure purposes, is calculated based on the present value of future principal and interest cash fl ows, discounted at the market rate of interest at the reporting date. For fi nance leases the market rate of interest is determined by reference to similar lease agreements. In respect of the Company’s borrowings that have fl oating rates of interest, their fair value approximates carrying value.

Building a winning future 207 Dr. Reddy’s Laboratories Limited

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(All amounts in Indian Rupees millions, except share data and where otherwise stated)

g) Share-based payment transactions The fair value of employee stock options is measured using the Black-Scholes-Merton valuation model. Measurement inputs include share price on grant date, exercise price of the instrument, expected volatility (based on weighted average historical volatility), expected life of the instrument (based on historical experience), expected dividends, and the risk free interest rate (based on government bonds). NOTE 2 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

2.1 Property, plant and equipment Plant and Furniture, ﬁ xtures Buildings Vehicles Particulars Land machinery and offi ce equipment Total Owned Leasehold Owned Leasehold Owned Leasehold Owned Leasehold Gross carrying value Balance as at 1 April 2017 3,948 20,263 835 61,742 16 5,065 1 390 345 92,605 Additions 324 1,031 - 5,457 - 508 - 293 - 7,613 Disposals (7) (40) - (1,063) - (154) - (4) (256) (1,524) Eff ect of changes in foreign exchange rates 35 33 114 374 - 35 - 1 - 592 Balance as at 31 March 2018 4,300 21,287 949 66,510 16 5,454 1 680 89 99,286

Balance as at 1 April 2018 4,300 21,287 949 66,510 16 5,454 1 680 89 99,286 Additions 3 1,476 - 6,002 - 707 - 122 3 8,313 Disposals(1)(2) (75) (797) - (2,260) - (427) (1) (25) (60) (3,645) Eff ect of changes in foreign exchange rates 1 187 (97) 160 (1) 4 - - - 254 Balance as at 31 March 2019 4,229 22,153 852 70,412 15 5,738 - 777 32 104,208

Accumulated Depreciation Balance as at 1 April 2017 39 4,984 264 32,839 16 3,805 1 217 159 42,324 Depreciation for the year - 923 45 6,445 - 573 - 88 176 8,250 Disposals - (30) - (992) - (86) - (4) (255) (1,367) Eff ect of changes in foreign exchange rates - 21 50 243 - 31 - 1 - 346 Balance as at 31 March 2018 39 5,898 359 38,535 16 4,323 1 302 80 49,553

Balance as at 1 April 2018 39 5,898 359 38,535 16 4,323 1 302 80 49,553 Depreciation for the year - 989 57 6,481 - 615 - 163 7 8,312 Disposals(1)(2) (39) (537) - (1,870) - (320) (1) (29) (59) (2,855) Eff ect of changes in foreign exchange rates - 36 (16) 49 (1) 3 - - - 71 Balance as at 31 March 2019 - 6,386 400 43,195 15 4,621 - 436 28 55,081

Net carrying value As at 31 March 2018 4,261 15,389 590 27,975 - 1,131 - 378 9 49,733 As at 31 March 2019 4,229 15,767 452 27,217 - 1,117 - 341 4 49,127

(1) During the year ended 31 March 2019, the Company sold its subsidiary Dr. Reddy’s Laboratories Tennessee, LLC and certain related assets to Neopharma Inc., resulting in the disposition of the Company’s formulations manufacturing facility and related assets in Bristol, Tennessee. The aforesaid transaction pertains to the Company’s Global Generics segment. An amount of ` 106 (including reclassifi cation of cumulative amount of foreign exchange gain relating to the foreign operation from FCTR to consolidated statement of profi t and loss of ` 79) representing the profi t on sale of membership interest in Dr. Reddy’s Laboratories Tennessee, LLC was included under the heading “other income”.

(2) During the year ended 31 March 2019, the Company sold one of its API manufacturing business units located in Jeedimetla, Hyderabad to Therapiva Private Limited. This sale was done by way of slump sale basis (as deﬁ ned under section 2(42C) of Indian Income Tax Act,1961) including all related property, plant and equipment, current assets, current liabilities, and transfer of employees. An amount of ` 423 representing the proﬁ t on the sale of such business unit was included under the heading “other income”. As of 31 March 2019 and 31 March 2018, the Company was committed to spend ` 2,495 and ` 3,788, respectively, under agreements to purchase property, plant and equipment. This amount is net of capital advances paid in respect of such purchase commitments. During the years ended 31 March 2019 and 31 March 2018, the Company capitalised interest cost of ` 74 and ` 71, respectively, with respect to qualifying assets. The rate for capitalisation of interest cost for the years ended 31 March 2019 and 31 March 2018 was approximately 3.21% and 2.76% respectively.

208 Company Overview Statutory Reports Financial Statements Annual Report 2018-19

Consolidated NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(All amounts in Indian Rupees millions, except share data and where otherwise stated)

2.2 Goodwill Goodwill arising upon business combinations is not amortised but tested for impairment at least annually or more frequently if there is any indication that the cash generating unit to which goodwill is allocated is impaired. Gross carrying value and accumulated amortisation with respect to goodwill represent Indian GAAP balances, that have been carried forward as such, relating to business combination entered before the transition date i.e., 1 April 2015. As at As at Particulars 31 March 2019 31 March 2018 Gross carrying value Opening balance 37,479 33,000 Additions - - Disposals - - Eff ect of changes in foreign exchange rates (2,322) 4,479 Closing balance 35,157 37,479

Accumulated amortisation Opening balance 32,148 28,237 Disposals - - Eff ect of changes in foreign exchange rates (1,650) 3,911 Closing balance 30,498 32,148 Net carrying value 4,659 5,331 For the purpose of impairment testing, goodwill is allocated to a cash generating unit, representing the lowest level within the Company at which goodwill is monitored for internal management purposes and which is not higher than the Company’s operating segment. The carrying amount of goodwill (other than those arising upon investment in a joint venture) was allocated to the cash generating units as follows: As at Particulars 31 March 2019 PSAI-Active Pharmaceutical Operations 153 Global Generics-Complex Injectables 1,747 Global Generics-North America Operations 303 Global Generics-Germany Operations 2,071 Global Generics-Branded Formulations 375 Others 10 4,659 The recoverable amounts of the above cash generating units have been assessed using a value-in-use model. Value in use is generally calculated as the net present value of the projected post-tax cash fl ows plus a terminal value of the cash generating unit to which the goodwill is allocated. Initially, a post-tax discount rate is applied to calculate the net present value of the post-tax cash fl ows. Key assumptions upon which the Company has based its determinations of value-in-use include: a) Estimated cash fl ows for fi ve years, based on management’s projections. b) A terminal value arrived at by extrapolating the last forecasted year cash fl ows to perpetuity, using a constant long-term growth rate of 0%. This long-term growth rate takes into consideration external macroeconomic sources of data. Such long-term growth rate considered does not exceed that of the relevant business and industry sector. c) The after tax discount rates used are based on the Company’s weighted average cost of capital. d) The after tax discount rates used range from 6.97% to 13.74% for various cash generating units. The pre-tax discount rates range from 7.56% to 16.63%. The Company believes that any reasonably possible change in the key assumptions on which a recoverable amount is based would not cause the aggregate carrying amount to exceed the aggregate recoverable amount of the cash-generating unit.

Building a winning future 209 Dr. Reddy’s Laboratories Limited

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(All amounts in Indian Rupees millions, except share data and where otherwise stated)

2.3 Other intangible assets Product related Customer related Particulars Others Total intangibles intangibles Gross carrying value Balance as at 1 April 2017 32,223 267 1,229 33,719 Additions 2,748 - 113 2,861 Disposals/De-recognitions - - - - Eff ect of changes in foreign exchange rates 1,018 - - 1,018 Balance as at 31 March 2018 35,989 267 1,342 37,598

Balance as at 1 April 2018 35,989 267 1,342 37,598 Additions 5,816 - 602 6,418 Disposals/De-recognitions(1) (3,219) (267) - (3,486) Eff ect of changes in foreign exchange rates 588 - 1 589 Balance as at 31 March 2019 39,174 - 1,945 41,119

Amortisation/impairment loss Balance as at 1 April 2017 18,649 267 540 19,456 Amortisation for the year 2,309 - 213 2,522 Impairment loss(2) 53 - - 53 Disposals/De-recognitions - - - - Eff ect of changes in foreign exchange rates 951 - - 951 Balance as at 31 March 2018 21,962 267 753 22,982

Balance as at 1 April 2018 21,962 267 753 22,982 Amortisation for the year 2,689 - 347 3,036 Disposals/De-recognitions(1) (2,815) (267) - (3,082) Impairment loss(2) 116 - - 116 Eff ect of changes in foreign exchange rates (58) - 1 (57) Balance as at 31 March 2019 21,894 - 1,101 22,995

Net carrying value As at 31 March 2018 14,027 - 589 14,616 As at 31 March 2019 17,280 - 844 18,124

(1) Gain on disposal of assets for the year ended 31 March 2019 includes an amount of ` 682 representing the proﬁ t on sale of intangible assets forming part of the Company’s Proprietary Products segment.

(2) As a result of the Company’s decision to discontinue a few products pertaining to its Global Generics segment, product related intangibles of ` 116 and ` 53 , were recorded as impairment loss for the years ended 31 March 2019 and 31 March 2018 respectively, under “selling and other expenses” in the consolidated statement of proﬁ t and loss. Details of signiﬁ cant intangible assets as at 31 March 2019: Particulars Acquired from Carrying Cost ANDAs Teva and an affi liate of Allergan 24,489 Select portfolio of dermatology, respiratory and pediatric assets UCB India Private Limited and affi liates 5,578 Intellectual property rights relating to PPC-06 Xenoport, Inc 3,527 Habitrol® brand Novartis Consumer Health Inc. 2,421 Commercialisation rights for an anti-cancer biologic agent Eisai Company Limited 1,620 Intellectual property rights relating to Xeglyze™ lotion Hatchtech Pty Limited 1,072 OTC product brands Ducere Pharma LLC 798 Intellectual property rights relating to fondaparinux sodium Alchemia Limited 187 ANDAs Gland Pharma Limited 332

210 Company Overview Statutory Reports Financial Statements Annual Report 2018-19

Consolidated NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(All amounts in Indian Rupees millions, except share data and where otherwise stated)

2.4 Intangible assets under development For the year ended For the year ended Particulars 31 March 2019 31 March 2018 Balance at the beginning of the year 27,027 27,150 Add: Additions during the year 1,171 523 Less: Capitalisations during the year(1) (5,445) (778) Eff ect of changes in exchange rates 1,857 132 Balance at end of the year 24,610 27,027 (1) During the year ended 31 March 2019, the products buprenorphine and naloxone sublingual ﬁ lm and tobramycin were available for use and are subject to amortisation. Accordingly, the Company reclassiﬁ ed the amount from intangible assets under development to product related intangibles. During the years ended 31 March 2019 and 31 March 2018, the Company capitalised interest cost of ` 655 and ` 458, respectively, with respect to certain qualifying assets. The rate for capitalisation of interest cost for the years ended 31 March 2019 and 31 March 2018 ranged from 1.98% to 4.12% and from 0.81% to 2.76%, respectively. 2.5 Investment in equity accounted investees As at As at Particulars 31 March 2019 31 March 2018 Investment in unquoted equity shares Equity shares held in Kunshan Rotam Reddy Pharmaceutical Company Limited, China(1) 2,464 2,029 8,580,000 (31 March 2018: 8,580,000) equity shares of 10/- each of DRES Energy Private ` 65 76 Limited, India 2,529 2,105

(1) Shares held in Kunshan Rotam Reddy Pharmaceutical Company Limited, China are not denominated in number of shares as per the laws of the country. Details of the Company’s investment in Kunshan Rotam Reddy Pharmaceuticals Company Limited : Kunshan Rotam Reddy Pharmaceuticals Company Limited (“Reddy Kunshan”) is engaged in manufacturing and marketing of fi nished dosages in China. The Company’s interest in Reddy Kunshan was 51.3% as of 31 March 2019 and 31 March 2018. Four directors of the Company are on the board of Reddy Kunshan, which consists of eight directors. Under the terms of the joint venture agreement, all major decisions with respect to operating activities, signifi cant fi nancing and other activities are taken by the approval of at least fi ve of the eight directors of Reddy Kunshan’s board. As the Company does not control Reddy Kunshan’s board and the other partners have signifi cant participation rights, the Company’s interest in Reddy Kunshan has been accounted for under the equity method of accounting under Ind AS 111. Summary fi nancial information of Reddy Kunshan, as translated into the reporting currency of the Company and not adjusted for the percentage ownership held by the Company, is as follows: As at/ As at/ Particulars For the year ended For the year ended 31 March 2019 31 March 2018 Ownership 51.3% 51.3% Total current assets 6,195 4,933 Total non-current assets 374 347 Total assets 6,569 5,280 Equity 4,448 3,600 Total current liabilities 2,121 1,680 Total equity and liabilities 6,569 5,280 Revenues 7,436 5,482 Expenses 6,558 4,792 Profi t for the year 878 690 Company’s share of profi ts for the year 449 354 Carrying value of the Company’s investment 2,464 2,029 Translation adjustment arising out of translation of foreign currency balances 241 255 Details of the Company’s investment in DRES Energy Private Limited : As at/ As at/ Particulars For the year ended For the year ended 31 March 2019 31 March 2018 Carrying value of the Company’s investment 65 76 Company’s share of loss for the year (11) (10)

Building a winning future 211 Dr. Reddy’s Laboratories Limited

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(All amounts in Indian Rupees millions, except share data and where otherwise stated)

2.6 Financial assets 2.6 A Investments Investments consist of investments in units of mutual funds, equity securities, bonds, commercial paper, and term deposits with banks (i.e., certiﬁ cates of deposit having an original maturity period exceeding 3 months). As at As at Particulars 31 March 2019 31 March 2018 Investments at FVTOCI Quoted equity shares (fully paid up) 5,465,693 (31 March 2018: 27,328,464) equity shares of US$ 0.05/- each (31 March 2018: US$ 0.01/- each) 753 1,164 of Curis, Inc. (Refer note 2.31) 120,000 (31 March 2018: 120,000) equity shares of ` 1/- each of State Bank of India 38 30 Total investments at FVTOCI (A) 791 1,194

Investments at FVTPL I. Investment in unquoted equity shares 8,859 (31 March 2018: 8,859) equity shares of ` 100/- each of Jeedimetla Effl uent Treatment 1 1 Limited, India Ordinary shares of Biomed Russia Limited, Russia(1) - - 200,000 (31 March 2018: 200,000) equity shares of ` 10/- each of Altek Engineering Limited, India - - 24,000 (31 March 2018: 24,000) equity shares of ` 100/- each of Progressive Effl uent Treatment - - Limited, India 20,250 (31 March 2018: 20,250) equity shares of ` 10/- each of Shivalik Solid Waste Management - - Limited, India (2) 1 1

II. Investment in unquoted mutual funds 16,240 14,778

Total investments at FVTPL (I+II) (B) 16,241 14,779

Investments carried at amortised cost I. Investment in term deposit with banks (original maturity more than 3 months) 558 41 II. Investment in bonds 5,272 4,633 III. Investment in commercial paper 459 232 IV. Others 21 - Total investments carried at amortised cost ( C ) 6,310 4,906

Total investments (A+B+C) 23,342 20,879

Current 22,529 18,330 Non-current 813 2,549 23,342 20,879

Aggregate carrying value of quoted investments 791 1,194 Aggregate market value of quoted investments 791 1,194 Aggregate carrying value of unquoted investments 22,551 19,685 Aggregate amount of impairment in value of investment in unquoted equity shares - - (1) Shares held in Biomed Russia Limited, Russia are not denominated in number of shares as per the laws of the country. (2) Rounded off to millions. 2.6 B Trade receivables As at As at Particulars 31 March 2019 31 March 2018 Considered good, unsecured 40,136 40,696 Credit impaired 1,018 1,041 41,154 41,737 Less: Allowance for credit losses (1,172) (1,041) 39,982 40,696

Current 39,869 40,527 Non-current(1) 113 169 39,982 40,696 (1) Represents amounts receivable pursuant to an out-licensing arrangement with a customer. As these amounts are not expected to be realised within twelve months from the end of the reporting date, they are disclosed as non-current.

212 Company Overview Statutory Reports Financial Statements Annual Report 2018-19

Consolidated NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(All amounts in Indian Rupees millions, except share data and where otherwise stated)

2.6 B Trade receivables (continued) During the year ended 31 March 2019, the Company entered into an arrangement with a bank for sale of trade receivables. Under the arrangement, the Company sold to the Bank certain of its trade receivables forming part of its Global Generics segment, on a non-recourse basis. The receivables sold were mutually agreed with the Bank after considering the credit worthiness of the customers and also other contractual terms with the customer including any gross to net adjustments due to rebates, discounts etc. from the contracted amounts, such that the receivables sold are generally lower than the net amount receivables from trade receivables. The Company has transferred substantially all the risks and rewards of ownership of such receivables sold to the Bank and accordingly, the same are derecognised in the consolidated balance sheet. As on 31 March 2019, the amount of trade receivables de-recognised pursuant to the aforesaid arrangement was ` 7,592 (US$ 110 million). In accordance with Ind AS 109, the Company uses the expected credit loss (“ECL”) model for measurement and recognition of impairment loss on its trade receivables or any contractual right to receive cash or another ﬁ nancial asset that result from transactions that are within the scope of Ind AS 115. For this purpose, the Company uses a provision matrix to compute the expected credit loss amount for trade receivables. The provision matrix takes into account external and internal credit risk factors and historical data of credit losses from various customers. The details of changes in allowance for credit losses during the year ended 31 March 2019 and 31 March 2018 are as follows: For the year ended For the year ended Particulars 31 March 2019 31 March 2018 Balance at the beginning of the year 1,041 935 Provision made during the year, net of reversals 371 169 Trade receivables written off during the year and eff ect of changes in the foreign exchange rates (240) (63) Balance at the end of the year 1,172 1,041

2.6 C Other ﬁ nancial assets As at As at Particulars 31 March 2019 31 March 2018 I. Non-current assets Considered good, unsecured Security deposits 562 664 Other assets 169 92 731 756 II. Current assets Considered good, unsecured Claims receivable 102 362 Other assets(1) 2,010 1,171 2,112 1,533 (1) Others primarily includes security deposits , interest accrued but not due on investments and other advances. 2.6 D Cash and cash equivalents As at As at Particulars 31 March 2019 31 March 2018 Balances with banks In current accounts 1,958 1,375 In EEFC accounts 33 7 In term deposit with banks (original maturities less than 3 months) 111 1,168 Cash on hand 2 2 Other bank balances In unclaimed dividend accounts 84 56 In unclaimed fractional share pay order accounts 1 1 In unclaimed debentures and debenture interest account 27 15 LC and Bank guarantee margin money 12 14 Cash and cash equivalents in the consolidated balance sheet 2,228 2,638

Less: Bank overdraft used for cash management purposes (Refer note 2.10 B) - (96) Cash and cash equivalents in the consolidated statement of cash ﬂ ow (including restricted cash) 2,228 2,542

Restricted cash balances included above Balance in unclaimed dividend and debenture interest account 112 72 Other restricted cash balances 12 14

Building a winning future 213 Dr. Reddy’s Laboratories Limited

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(All amounts in Indian Rupees millions, except share data and where otherwise stated)

2.7 Other assets As at As at Particulars 31 March 2019 31 March 2018 A. Non-current assets Considered good, unsecured Capital advances 192 248 Others 215 276 407 524 B. Current assets Considered good, unsecured Balances and receivables from statutory authorities(1) 4,398 6,741 Export beneﬁ ts receivable(2) 2,363 2,842 Prepaid expenses 951 761 Others(3) 2,712 2,418

Considered doubtful, unsecured Other advances 104 86 10,528 12,848 Less: Allowance for doubtful advances (104) (86) 10,424 12,762 (1) Balances and receivables from statutory authorities primarily consist of amounts receivable from the goods and service tax (“GST”), excise duty, value added tax and customs authorities of India and the unutilised GST input tax credits, excise duty, service tax and value added tax input credits (subsumed under GST input tax credits eff ective as of 1 July 2017) on purchases. These are regularly utilised to off set the GST liability (or, prior to 1 July 2017, liability for excise duty, value added tax, etc.) on goods produced by and services provided by the Company. Accordingly, these balances have been classiﬁ ed as current assets. (2) Export beneﬁ ts receivables primarily consist of amounts receivable from various government authorities of India towards incentives on export sales made by the Company.

(3) Others primarily includes advances given to vendors, employees and other advances. 2.8 Inventories As at As at Particulars 31 March 2019 31 March 2018 Raw materials (includes in transit ` 43; 31 March 2018: ` 18) 8,920 7,279 Work-in-progress 7,201 7,190 Finished goods 7,127 6,875 Stock-in-trade 7,842 5,351 Packing material , stores and spares 2,489 2,394 33,579 29,089

During the year ended 31 March 2019, the Company recorded inventory write-down of ` 4,016 (31 March 2018 : ` 2,946) in the consolidated statement of proﬁ t and loss. 2.9 Share capital As at As at Particulars 31 March 2019 31 March 2018 Authorised share capital 240,000,000 equity shares of ` 5/- each (31 March 2018: 240,000,000) 1,200 1,200

Issued equity capital 166,066,148 equity shares of ` 5/- each fully paid-up (31 March 2018: 165,911,107) 830 830

Subscribed and fully paid-up 166,066,148 equity shares of ` 5/- each fully paid-up (31 March 2018: 165,910,907) 830 830 Add: Forfeited share capital (e) - - 830 830

214 Company Overview Statutory Reports Financial Statements Annual Report 2018-19

Consolidated NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(All amounts in Indian Rupees millions, except share data and where otherwise stated)

2.9 Share capital (continued) a) Reconciliation of the equity shares outstanding is set out below: For the year ended For the year ended Particulars 31 March 2019 31 March 2018 No. of shares Amount No. of shares Amount Opening number of equity shares/share capital 165,910,907 830 165,741,713 829 Add: Equity shares issued pursuant to employee stock option plan(1) 155,041 -* 169,194 1 Closing number of equity shares/share capital 166,065,948 830 165,910,907 830 Treasury shares(2) 217,976 535 - - * Rounded off to millions. (1) During the years ended 31 March 2019 and 31 March 2018, equity shares were issued as a result of the exercise of vested options granted to employees pursuant to the Dr. Reddy’s Employees Stock Option Plan, 2002 and Dr. Reddy’s Employees Stock Option Plan, 2007. All of the options exercised had an exercise price of ` 5, being equal to the par value of the underlying shares. Upon the exercise of such options, the amount of compensation cost (computed using the grant date fair value) previously recognised in the “share-based payment reserve” was transferred to “securities premium” in the consolidated statement of changes in equity.

(2) Pursuant to the special resolution approved by the shareholders in the Annual General Meeting held on 27 July 2018, the Dr. Reddy’s Employees ESOS Trust (the “ESOS Trust”) was formed to support the Dr. Reddy’s Employees Stock Option Scheme, 2018 by acquiring, including through secondary market acquisitions, equity shares which are used for issuance to eligible employees upon exercise of stock options thereunder. As at 31 March 2019, the ESOS Trust purchased 217,976 shares from secondary market for an aggregate consideration of ` 535. Refer note 2.28 of these ﬁ nancial statements for further details on the Dr. Reddy’s Employees Stock Option Scheme, 2018. b) Terms/rights attached to the equity shares The Company has only one class of equity shares having a par value of ` 5 per share. For all matters submitted to vote in a shareholders meeting of the Company, every holder of an equity share, as reﬂ ected in the records of the Company as on the record date set for the shareholders meeting, shall have one vote in respect of each share held. Should the Company declare and pay any dividends, such dividends will be paid in Indian rupees to each holder of equity shares in proportion to the number of shares held to the total equity shares outstanding as on that date. Indian law on foreign exchange governs the remittance of dividends outside India. In the event of liquidation of the Company, all preferential amounts, if any, shall be discharged by the Company. The remaining assets of the Company shall be distributed to the holders of equity shares in proportion to the number of shares held to the total equity shares outstanding as on that date. Final dividends on equity shares (including dividend tax on distribution of such dividends) are recorded as a liability on the date of their approval by the shareholders and interim dividends are recorded as a liability on the date of declaration by the Company’s Board of Directors. The details of dividends paid by the Company are as follows: For the year ended For the year ended Particulars 31 March 2019 31 March 2018 Dividend per share (in absolute `) 20 20 Dividend distribution tax on the dividend paid 682 675 Dividend paid during the year 3,320 3,317

At the Company’s Board of Directors’ meeting held on 17 May 2019, the Board proposed a dividend of ` 20 per share and aggregating to ` 3,321, which is subject to the approval of the Company’s shareholders. Upon such approval, there will be an additional cash outﬂ ow of ` 683 for payment of dividend distribution tax thereon. c) Details of shareholders holding more than 5% shares in the Company As at As at 31 March 2019 31 March 2018 Particulars % holding % holding No. of shares held No. of shares held in the class in the class Dr. Reddy’s Holdings Limited 41,325,300 24.88 41,083,500 24.76 First State Investments Management (UK) Limited, Commonwealth Bank of Australia, Stewart Investors and their 11,838,598 7.13 10,726,942 6.47 associates* * Does not include ADR holding. d) 270,141 (31 March 2018: 320,544) stock options are outstanding and are to be issued by the Company upon exercise of the same in accordance with the terms of exercise under the “Dr. Reddy’s Employees Stock Option Plan, 2002”, 261,215 (31 March 2018: 107,308) stock options are outstanding and are to be issued by the Company upon exercise of the same in accordance with the terms of exercise under the “Dr. Reddy’s Employees ADR Stock Option Plan, 2007” and 229,600 (31 March 2018: Nil) stock options are outstanding and are to be issued by the Company upon exercise of the same in accordance with the terms of exercise under the “Dr. Reddy’s Employees Stock Option Scheme, 2018 “ (Refer note 2.28). e) Represents 200 equity shares of ` 5/- each, amount paid-up ` 500/- (rounded off to millions in the note above) forfeited due to non-payment of allotment money.

Building a winning future 215 Dr. Reddy’s Laboratories Limited

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(All amounts in Indian Rupees millions, except share data and where otherwise stated)

2.9 Share capital (continued) f) During the year ended 31 March 2017, the Company bought-back and extinguished 5,077,504 equity shares under the buy-back of equity shares plan approved by the shareholders on 1 April 2016

Aggregate number of shares bought back during the period of ﬁ ve years immediately preceding the reporting date: Year ended 31 March Particulars 2019 2018 2017 2016 2015 Ordinary shares of ` 5 each - - 5,077,504 - - 2.10 Financial Liabilities 2.10 A Non-current borrowings As at As at Particulars 31 March 2019 31 March 2018 Unsecured Long-term loans from banks 21,448 24,459

Secured Long-term maturities of obligations under ﬁ nance leases 552 630 22,000 25,089

2.10 B Current borrowings As at As at Particulars 31 March 2019 31 March 2018 From Banks Unsecured Pre-shipment credit 5,463 21,008 Other foreign currency borrowings 6,662 4,458 Bank overdraft - 96 12,125 25,562 a) Summary of non-current borrowings is as follows: As at As at Particulars 31 March 2019 31 March 2018 Non-Current Current Non-Current Current Foreign currency borrowing by the parent company 3,454 1,729 4,880 - Foreign currency borrowing by the Swiss Subsidiary(1) 15,819 1,383 16,185 - Foreign currency borrowing by the German Subsidiary(2) 2,175 1,087 3,394 - Obligations under ﬁ nance leases 552 57 630 63 22,000 4,256 25,089 63

(1) Swiss subsidiary refers to Dr. Reddy’s Laboratories, SA (2) German subsidiary refers to Reddy Holding GMBH

All the foregoing loan agreements impose various fi nancial covenants on the Company. As of 31 March 2019 , the Company was in compliance with all such fi nancial covenants. b) The interest rate profi les of long-term borrowings (other than obligations under fi nance leases) as at 31 March 2019 and 31 March 2018 were as follows: As at As at Particulars 31 March 2019 31 March 2018 Currency(1) Interest Rate(2) Currency(1) Interest Rate(2) 1 Month LIBOR 1 Month LIBOR US$ US$ Foreign currency borrowings + 70 to 105 bps + 45 to 82.7 bps EUR 0.81% EUR 0.81%

(1) “US$” means United States dollars and “EUR” means Euros. (2) “LIBOR” means the London Inter-bank Off ered Rate.

216 Company Overview Statutory Reports Financial Statements Annual Report 2018-19

Consolidated NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(All amounts in Indian Rupees millions, except share data and where otherwise stated)

2.10 A & B Borrowings (continued) c) The aggregate maturities of long-term loans and borrowings, based on contractual maturities, as of 31 March 2018 and 31 March 2019 were as follows: As at 31 March 2019 Particulars Foreign Obligations under Total currency loan ﬁ nance leases Maturing in the year ending 31 March(1) 2020 4,199 57 4,256 2021 6,621 65 6,686 2022 1,087 66 1,153 2023 13,831 70 13,901 2024 - 63 63 Thereafter - 288 288 25,738 609 26,347

(1) Long-term debt obligations disclosed in the above table do not reﬂ ect any netting of transaction costs amounting to ` 91. As at 31 March 2018 Particulars Foreign Obligations under Total currency loan ﬁ nance leases Maturing in the year ending 31 March(1) 2019 - 63 63 2020 4,064 59 4,123 2021 6,346 61 6,407 2022 1,131 66 1,197 2023 13,035 71 13,106 Thereafter - 373 373 24,576 693 25,269

(1) Long-term debt obligations disclosed in the above table do not refl ect any netting of transaction costs amounting to ` 117. d) The Company has leased buildings and vehicles under fi nance leases. Future minimum lease payments under fi nance leases as at 31 March 2019 were as follows: Present value of Future minimum Particulars minimum lease Interest lease payments payments Not later than one year 60 49 109 Between one and fi ve years 264 127 391 More than fi ve years 285 38 323 609 214 823

Future minimum lease payments under fi nance leases as at 31 March 2018 were as follows: Present value of Future minimum Particulars minimum lease Interest lease payments payments Not later than one year 63 57 120 Between one and fi ve years 257 159 416 More than fi ve years 373 66 439 693 282 975 e) Short-term borrowings primarily consist of “pre-shipment credit” drawn by the parent company which are repayable within 6 to 12 months from the date of drawdown and other unsecured loans drawn by certain of its subsidiaries in Switzerland, the United States, Russia, Mexico, Ukraine and South Africa which are repayable in the next fi nancial year.

Building a winning future 217 Dr. Reddy’s Laboratories Limited

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(All amounts in Indian Rupees millions, except share data and where otherwise stated)

2.10 A & B Borrowings (continued) f) The interest rate proﬁ le of short-term borrowings from banks is given below: As at As at Particulars 31 March 2019 31 March 2018 Currency(1) Interest Rate(2) Currency(1) Interest Rate(2) 1 Month LIBOR 1 Month LIBOR US$ US$ + 25 to 40 bps + (30) to 30 bps Pre-shipment credit --INR 6.00% --RUB 6.75% 1 Month/3 Months 1 Month LIBOR US$ US$ LIBOR + 65 to 95 bps + 65 to 85 bps UAH 21.50% UAH 18.00% Other foreign currency borrowings MXN TIIE + 1.25% -- 1 Month JIBAR ZAR -- + 120 Bps RUB 8.22% RUB 8.20%

(1) “INR” means Indian rupees, “US$” means United States dollars, “RUB” means Russian roubles, “MXN” means Mexican pesos, “UAH” means Ukrainian hryvnia and “ZAR” means South African rand.

(2) “LIBOR” means the London Inter-bank Off ered Rate, “TIIE” means the Equilibrium Inter-banking Interest Rate (Tasa de Interés Interbancaria de Equilibrio) and “JIBAR” means the Johannesburg Interbank Average Rate. g) The Company had uncommitted lines of credit of ` 47,134 and ` 24,046 as of 31 March 2019 and 31 March 2018, respectively, from its banks for working capital requirements. The Company has the right to draw upon these lines of credit based on its working capital requirements. h) Reconciliation of liabilities arising from ﬁ nancing activities Non-current Current Particulars Total borrowings(1) borrowings Opening balance at the beginning of the year 25,152 25,466 50,618 Borrowings made during the year - 42,907 42,907 Borrowings repaid during the year (56) (58,033) (58,089) Eff ect of changes in foreign exchange rates 1,128 1,785 2,913 Others 32 - 32 Closing balance at the end of the year 26,256 12,125 38,381

(1) Does not include movement in bank overdraft and includes current portion. 2.10 C Other fi nancial liabilities As at As at Particulars 31 March 2019 31 March 2018 I. Other long-term liabilities 102 144 102 144 II. Other current fi nancial liabilities Current maturities of long-term debt 4,199 - Current maturities of fi nance lease obligations 57 63 Due to capital creditors 882 2,723 Interest accrued but not due on loans 15 37 Accrued expenses 15,178 14,682 Trade and security deposits received 179 190 Unclaimed dividends, debentures and debenture interest(1) 111 71 Others 2,049 1,731 22,670 19,497

Current 22,670 19,497 Non- current 102 144 22,772 19,641 (1) Unclaimed amounts are transferred to Investor Protection and Education Fund after seven years from the due date.

218 Company Overview Statutory Reports Financial Statements Annual Report 2018-19

Consolidated NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(All amounts in Indian Rupees millions, except share data and where otherwise stated)

2.10 D Trade payables As at As at Particulars 31 March 2019 31 March 2018 Due to micro, small and medium enterprises 77 93 Others 13,594 13,252 13,671 13,345

For details regarding the Company’s exposure to currency and liquidity risks, see note no. 2.32 of these consolidated fi nancial statements under “Liquidity risk”. 2.11 Provisions As at As at Particulars 31 March 2019 31 March 2018 A. Non-current provisions Provision for employee benefi ts (Refer note 2.27) Long service award benefi t plan 49 49 Pension, seniority and severance indemnity plans 160 188 Compensated absences 532 527 Other provisions (a) 52 53 793 817 B. Current provisions Provision for employee benefi ts (Refer note 2.27) Gratuity 40 67 Long service award benefi t plan 14 13 Pension, seniority and severance indemnity plans 12 9 Compensated absences 557 566 Other provisions (a) Refund liability 3,581 3,210 Others 585 522 4,789 4,387 a) Details of changes in other provisions during the year ended 31 March 2019 are as follows: Refund Environmental Legal and Particulars Total liability(1) liability(2) others(3) Balance at the beginning of the year 3,210 53 522 3,785 Provision made during the year, net of reversals 3,592 - 63 3,655 Provision used during the year (3,324) - - (3,324) Eff ect of changes in foreign exchange rates 103 (1) - 102 Balance at end of the year 3,581 52 585 4,218

Current 3,581 - 585 4,166 Non-current - 52 - 52 3,581 52 585 4,218 (1) Refund liability is accounted for by recording a provision based on the Company’s estimate of expected sales returns. See note 1.3 (m) of these consolidated fi nancial statements for the Company’s accounting policy on refund liability. (2) As a result of the acquisition of a unit of The Dow Chemical Company in April 2008, the Company assumed a liability for contamination of the Mirfi eld site acquired of ` 39 (carrying value ` 52). The seller is required to indemnify the Company for this liability. Accordingly, a corresponding asset has also been recorded in the consolidated balance sheet. (3) Primarily consists of provision recorded towards the potential liability arising out of a litigation relating to cardiovascular and anti-diabetic formulations. Refer to note 2.33 of these consolidated fi nancial statements under “Product and patent related matters - Matters relating to National Pharmaceutical Pricing Authority - Litigation relating to Cardiovascular and Anti-diabetic formulations” for further details.

Building a winning future 219 Dr. Reddy’s Laboratories Limited

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(All amounts in Indian Rupees millions, except share data and where otherwise stated)

2.12 Other liabilities As at As at Particulars 31 March 2019 31 March 2018 A. Non-current liabilities Deferred revenue 2,002 2,697 Other non-current liabilities 77 92 2,079 2,789 B. Current liabilities Salary and bonus payable 3,178 2,434 Statutory dues payable 722 915 Deferred revenue 590 622 Advance from customers 761 360 Others 218 201 5,469 4,532 2.13 Revenue from contracts with customers and trade receivables Revenue from contracts with customers: For the year ended For the year ended Particulars 31 March 2019 31 March 2018 Sales(1) 148,706 138,022 Service income 2,129 1,534 License fees(2) 3,016 2,472 153,851 142,028 Excise duty included in revenues(1) - 173 (1) Eff ective 1 July 2017, Goods and Services Tax (“GST”) was introduced in India replacing the excise duty and various other taxes. Following the principles of Ind AS 115, Revenue from Contracts with Customers, sales is disclosed net of GST. For periods prior to 1 July 2017, the excise duty amount was recorded as part of revenues. Accordingly, sales for the year ended 31 March 2019 are not comparable with those of the previous year presented. (2) License fees for the year ended 31 March 2019 and 31 March 2018, primarily includes out-licensing revenue from Encore Dermatology Inc. (Refer to note 2.38 of these consolidated ﬁ nancial statements for further details). Analysis of revenues by segments: The following table shows the analysis of revenues (excluding other operating income) by segments: For the year ended For the year ended Particulars 31 March 2019 31 March 2018 Global Generics 122,903 114,014 PSAI 24,140 21,992 Proprietary products 4,750 4,245 Others 2,058 1,777 153,851 142,028 Analysis of revenues within the Global Generics segment: An analysis of revenues (excluding other operating income) by therapeutic areas in the Company’s Global Generics segment is given below: For the year ended For the year ended Particulars 31 March 2019 31 March 2018 Gastrointestinal 19,250 19,153 Oncology 18,357 16,999 Cardiovascular 15,106 16,501 Pain Management 13,806 12,898 Central Nervous System 15,909 12,509 Anti-Infective 7,073 6,557 Others 33,402 29,397 122,903 114,014 Analysis of revenues within the PSAI segment: An analysis of revenues (excluding other operating income) by therapeutic areas in the Company’s PSAI segment is given below: For the year ended For the year ended Particulars 31 March 2019 31 March 2018 Cardiovascular 7,019 6,191 Pain Management 3,364 3,228 Central Nervous System 2,741 2,331 Anti-Infective 1,247 1,968 Dermatology 1,622 1,606 Oncology 2,212 1,650 Others 5,935 5,018 24,140 21,992

220 Company Overview Statutory Reports Financial Statements Annual Report 2018-19

Consolidated NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(All amounts in Indian Rupees millions, except share data and where otherwise stated)

2.13 Revenue from contracts with customers and trade receivables (continued) Analysis of revenues by geography: The following table shows the distribution of the Company’s revenues (excluding other operating income) by country, based on the location of the customers: For the year ended For the year ended Particulars 31 March 2019 31 March 2018 India 28,804 25,209 United States 69,299 68,124 Russia 15,299 12,610 Others 40,449 36,085 153,851 142,028 Information about major customers: Revenues from two customers of the Company’s Global Generics segment were `10,639 and ` 10,024, representing approximately 7% each, of the Company’s total revenues for the year ended 31 March 2019. Revenues from two customers of the Company’s Global Generics segment were ` 13,486 and ` 10,755, representing approximately 9% and 8%, respectively, of the Company’s total revenues for the year ended 31 March 2018. Details of signiﬁ cant gross to net adjustments relating to Company’s North America operations (amounts in US$ millions): A roll-forward for each major accrual for the Company’s North America operations for the ﬁ nancial years ended 31 March 2018 and 31 March 2019 is as follows: All values in US$ millions Particulars Chargebacks Rebates Medicaid Refund Liability Balance as at 1 April 2017 191 186 13 36 Current provisions relating to sales during the year(1) 1,750 630 18 22 Provisions and adjustments relating to sales in prior years * - - - Credits and payments** (1,771) (655) (19) (30) Balance as at 31 March 2018 170 161 12 28

Balance as at 1 April 2018 170 161 12 28 Current provisions relating to sales during the year(2) 1,415 461 18 29 Provisions and adjustments relating to sales in prior years * - - - Credits and payments** (1,457) (530) (19) (27) Balance as at 31 March 2019 128 92 11 30 * Currently, the Company does not separately track provisions and adjustments, in each case to the extent relating to prior years for chargebacks. However, the adjustments are expected to be non-material. The volumes used to calculate the closing balance of chargebacks represent approximately 1.1 months equivalent of sales, which corresponds to the pending chargeback claims yet to be processed.

** Currently, the Company does not separately track the credits and payments, in each case to the extent relating to prior years for chargebacks, rebates, medicaid payments or refund liability.

(1) Chargebacks and rebates provisions for the year ended 31 March 2018 and payments for the year ended 31 March 2018 were each lower as compared to the year ended 31 March 2017, primarily as a result of lower pricing rates per unit for chargebacks, due to a reduction in the invoice price to wholesalers for certain of the Company’s products, and due to certain product mix changes. (2) Chargebacks and rebates provisions for the year ended 31 March 2019 and payments for the year ended 31 March 2019 were each lower as compared to the year ended 31 March 2018, primarily as a result of lower pricing rates per unit for chargebacks, and due to a reduction in the invoice price to wholesalers for certain of the Company’s products.

The estimates of “gross-to-net” adjustments for the Company’s operations in India and other countries outside of the United States relate mainly to refund liability in all such operations, and certain rebates to healthcare insurance providers are specifi c to the Company’s German operations. The pattern of such refund liability is generally consistent with the Company’s gross sales. In Germany, the rebates to healthcare insurance providers mentioned above are contractually fi xed in nature and do not involve signifi cant estimations by the Company. The Company’s overall refund liability as at 31 March 2019 relating to its North America operations was US$ 30 million, as compared to a liability of US$ 28 million as at 31 March 2018. This increase in the Company’s liability was primarily attributable to a higher refund liability created for the year ended 31 March 2019 as compared to the year ended 31 March 2018 , which allowance change was primarily based on certain product mix changes and recent trends in actual sales returns, together with the Company’s historical experience, in the markets in which it operates.

Building a winning future 221 Dr. Reddy’s Laboratories Limited

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(All amounts in Indian Rupees millions, except share data and where otherwise stated)

2.13 Revenue from contracts with customers and trade receivables (continued) Details of refund liabilities: For the year ended For the year ended Particulars 31 March 2019 31 March 2018 Balance at the beginning of the year 3,210 3,784 Provision made during the year, net of reversals 3,592 2,702 Provision used during the year (3,324) (3,303) Eff ect of changes in foreign exchange rates 103 27 Balance at end of the year 3,581 3,210

Current 3,581 3,210 Non-current - - 3,581 3,210

Details of contract asset: As mentioned in the accounting policies for refund liability set forth in note 1.3 (m) of these consolidated ﬁ nancial statements, the Company recognises an asset, (i.e., right to the returned goods) which is included in inventories for the products expected to be returned. The Company initially measures this asset at the former carrying amount of the inventory, less any expected costs to recover the goods, including any potential decreases in the value of the returned goods. Along with re-measuring the refund liability at the end of each reporting period, the Company updates the measurement of the asset recorded for any revisions to its expected level of returns, as well as any additional decreases in the value of the returned products. As on 31 March 2019 and 31 March 2018, the Company had ` 16 and ` 17, respectively, as contract assets representing the right to returned goods. Details of deferred revenue: Tabulated below is the reconciliation of deferred revenue for the years ended 31 March 2019 and 31 March 2018: For the year ended For the year ended Particulars 31 March 2019 31 March 2018 Balance at the beginning of the year 3,319 3,675 Revenue recognised during the year (815) (507) Milestone payment received during the year 88 151 Balance at end of the year 2,592 3,319

Current 590 622 Non-current 2,002 2,697 2,592 3,319 Details of contract liabilities: As at As at Particulars 31 March 2019 31 March 2018 Advance from customers 761 360 761 360 Out-licensing agreement with CHD Biosciences Inc.: In July 2017, the Company entered into an agreement with CHD Biosciences Inc for out-licensing the Phase III clinical trial candidate, DFA-02. As part of the agreement, the Company is entitled to receive equity shares in CHD valued at US$ 30 million upon an initial public off ering of CHD or, if no initial public off ering occurs within 18 months of execution of the agreement, a cash payment of US$ 30 million. The Company will also receive additional milestone payments of US$ 40 million upon U.S. FDA approval. In addition, the Company is entitled to royalties on sales and certain other commercial milestone payments with respect to the product. At the time of execution, as the arrangement did not meet all of the revenue recognition criteria, no revenue has been recognised for the transaction during the year ended 31 March 2018. During the year ended 31 March 2019, the Company terminated the agreement with Armis Biopharma, Inc. (formerly known as CHD Bioscience, Inc.) and regained the world-wide rights to DFA-02.

2.14 Other operating income For the year ended For the year ended Particulars 31 March 2019 31 March 2018 Sale of spent chemicals 356 297 Scrap sales 179 168 Miscellaneous income, net 96 317 631 782

222 Company Overview Statutory Reports Financial Statements Annual Report 2018-19

Consolidated NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(All amounts in Indian Rupees millions, except share data and where otherwise stated)

2.15 Other income For the year ended For the year ended Particulars 31 March 2019 31 March 2018 Interest income 770 540 Profi t on sale of unit of mutual funds, net 466 806 Fair value gain on fi nancial instruments measured at fair value through profi t or loss 307 75 Gain on sale/disposal of property , plant and equipment and other intangible assets, net(1) 1,257 - Foreign exchange gain, net 458 48 Miscellaneous income, net 117 83 3,375 1,552

(1) a) During the year ended 31 March 2019 , the Company entered into an agreement with Neopharma Inc. for the sale of its formulations manufacturing facility and related assets in Bristol, Tennessee in the form of membership transfer. All the sale formalities were completed and the Company sold all of the issued and outstanding membership interests in Dr. Reddy’s Laboratories Tennessee, LLC and certain related assets. (Refer note 2.1 of these consolidated fi nancial statements for further details). b) During the year ended 31 March 2019, the Company sold one of its API manufacturing business units located in Jeedimetla, Hyderabad to Therapiva Private Limited. This sale was done by way of slump sale basis (as defi ned under section 2(42C) of Indian Income Tax Act, 1961) including all related property, plant and equipment, current assets, current liabilities, and transfer of employees. Gain on disposal of assets includes an amount of ` 423 representing the profi t on sale of such business unit. (Refer note 2.1 of these consolidated fi nancial statements for further details). c) Gain on disposal of assets for the year ended 31 March 2019 includes an amount of ` 423 representing the profi t on sale of an intangible asset forming part of the Company’s Proprietary Products segment. (Refer note 2.3 of these consolidated fi nancial statements for further details).

d) ` 259 representing the profi t on sale of intangible assets as other income, before adjusting the associated costs of ` 100, forming part of the Company’s Proprietary Products segment. (Refer note 2.3 of these consolidated fi nancial statements for further details). 2.16 Changes in inventories of fi nished goods, work-in-progress and stock-in-trade For the year ended For the year ended Particulars 31 March 2019 31 March 2018 Opening Work-in-progress 7,190 6,626 Finished goods 6,875 8,364 Stock-in-trade 5,351 19,416 4,011 19,001

Closing Work-in-progress 7,201 7,190 Finished goods 7,127 6,875 Stock-in-trade 7,842 22,170 5,351 19,416 (2,754) (415)

2.17 Employee beneﬁ ts expense For the year ended For the year ended Particulars 31 March 2019 31 March 2018 Salaries, wages and bonus 28,617 27,210 Contribution to provident and other funds 2,438 2,487 Staff welfare expenses 2,033 1,970 Share-based payment expenses 474 482 33,562 32,149

2.18 Depreciation and amortisation expense For the year ended For the year ended Particulars 31 March 2019 31 March 2018 Depreciation of property, plant and equipment 8,312 8,250 Amortisation of other intangible assets 3,036 2,522 11,348 10,772

2.19 Finance costs For the year ended For the year ended Particulars 31 March 2019 31 March 2018 Interest on long-term borrowings 380 255 Interest on other borrowings 509 533 889 788

Building a winning future 223 Dr. Reddy’s Laboratories Limited

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(All amounts in Indian Rupees millions, except share data and where otherwise stated)

2.20 Selling and other expenses For the year ended For the year ended Particulars 31 March 2019 31 March 2018 Consumption of stores, spares and other materials 4,524 5,629 Clinical trials and other R&D expenses 6,795 8,352 Advertisements 1,303 1,410 Commission on sales 229 219 Carriage outward 3,428 2,781 Other selling expenses 9,275 8,892 Legal and professional 4,395 4,396 Power and fuel 3,291 3,293 Repairs and maintenance Buildings 314 458 Plant and machinery 805 688 Others 1,910 2,338 Insurance 396 346 Travel and conveyance 1,698 1,676 Rent 776 629 Rates and taxes 757 635 Loss on sale/disposal of property , plant and equipment and other intangible assets, net - 55 Corporate social responsibility and donations(1) 459 520 Allowance for credit losses, net (Refer note 2.6 B) 371 169 Allowance for doubtful advances, net 49 16 Non Executive Directors’ remuneration 80 61 Auditors’ remuneration (Refer note 2.22) 16 16 Other general expenses 3,319 4,175 44,190 46,754 (1) Details of corporate social responsibility expenditure in accordance with section 135 of the Companies Act, 2013: Particulars In Cash Yet to be paid in cash Total Gross amount required to be spent by the Company during the year 244 Amount spent during the year ending on 31 March 2019 269 - 269 Amount spent during the year ending on 31 March 2018 334 -* 334 * Rounded off to millions. 2.21 Research and development expenses Details of research and development expenses (excluding depreciation and amortisation expense) incurred during the year and included under various heads of expenditures are given below: For the year ended For the year ended Particulars 31 March 2019 31 March 2018 Employee beneﬁ ts expense (included in note 2.17) 4,627 4,926 Other expenses (included in note 2.20) Materials and consumables 2,967 4,114 Clinical trials and other R&D expenses 6,795 8,352 14,389 17,392

2.22 Auditors’ remuneration For the year ended For the year ended Particulars 31 March 2019 31 March 2018 Audit fees 13 13 Other charges- Certiﬁ cation fee 1 1 Reimbursement of out of pocket expenses 2 2 16 16

224 Company Overview Statutory Reports Financial Statements Annual Report 2018-19

Consolidated NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(All amounts in Indian Rupees millions, except share data and where otherwise stated)

2.23 Earnings per share (EPS) For the year ended For the year ended Particulars 31 March 2019 31 March 2018 Earnings Proﬁ t attributable to equity shareholders of the Company 19,500 9,468 Shares Number of equity shares at the beginning of the year 165,910,907 165,741,713 Eff ect of treasury shares held (100,672) - Eff ect of equity shares issued on exercise of stock options 103,801 103,695 Weighted average number of equity shares – Basic 165,914,036 165,845,408 Dilutive eff ect of stock options outstanding(1) 278,718 340,144 Weighted average number of equity shares – Diluted 166,192,754 166,185,522 Earnings per share of par value ` 5/- – Basic ( ` ) 117.53 57.08 Earnings per share of par value ` 5/- – Diluted ( ` ) 117.33 56.96 (1) As at 31 March 2019, 272,700 options were excluded from the diluted weighted average number of equity shares calculation because their eff ect would have been anti-dilutive. The average market value of the Company’s shares for the purpose of calculating the dilutive eff ect of stock options was based on quoted market prices for the year during which the options were outstanding. 2.24 Related parties a) In accordance with the provisions of Ind AS 24, Related Party Disclosures and the Companies Act, 2013, Company’s Directors, members of the Company’s Management Council and Company Secretary are considered as Key Management Personnel. List of Key Management Personnel of the Company is as below: 1 K Satish Reddy Whole-time director 2 G V Prasad Whole-time director 3 Anupam Puri Independent director 4 Kalpana Morparia Independent director 5 Dr. Omkar Goswami Independent director 6 Dr. Bruce LA Carter Independent director 7 Sridar Iyengar Independent director 8 Bharat Narotam Doshi Independent director 9 Prasad R Menon (from 30 October 2017) Independent director 10 Leo Puri (from 25 October 2018) Independent director 11 Shikha Sharma (from 31 January 2019) Independent director 12 Allan Oberman (from 26 March 2019) Independent director 13 Dr. K V S Ram Rao (till 1 October 2018) Management council 14 Hans Peter Hasler (till 14 June 2018) Independent director 15 Dr. Ashok Ganguly (till 28 July 2017) Independent director 16 M V Ramana Management council 17 Saumen Chakraborty Management council 18 Ganadhish Kamat Management council 19 Anil Namboodiripad Management council 20 Archana Bhaskar (from 15 June 2017) Management council 21 Sanjay Sharma (from 1 August 2017) Management council 22 Sauri Gudlavalleti (from 1 April 2018) Management council 23 P Yugandhar (from 1 April 2018) Management council 24 Erez Israeli (from 2 April 2018) Management council 25 Dr. Raymond de Vre (from 1 June 2018) Management council 26 Deepak Sapra (from 1 October 2018) Management council 27 Marc Kikuchi (from 1 February 2019) Management council 28 Dr. Cartikeya Reddy (till 30 September 2018) Management council 29 Alok Sonig (till 7 September 2018) Management council 30 Dr. Amit Biswas (till 21 June 2018) Management council 31 Abhijit Mukherjee (till 31 March 2018) Management council 32 Samiran Das (till 31 January 2018) Management council 33 J Ramachandran (till 31 October 2017) Management council 34 Dr. Chandrasekhar Sripada (till 31 July 2017) Management council 35 Sandeep Poddar Company secretary

Building a winning future 225 Dr. Reddy’s Laboratories Limited

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(All amounts in Indian Rupees millions, except share data and where otherwise stated)

2.24 Related parties (continued) b) List of related parties with whom transactions have taken place during the current and/or previous year: 1 K Samrajyam Mother of Chairman 2 K Deepti Reddy Spouse of Chairman 3 G Anuradha Spouse of Chief Executive Offi cer 4 G Mallika Reddy Daughter of Chief Executive Offi cer 5 G V Sanjana Reddy Daughter of Chief Executive Offi cer 6 Akhil Ravi (from 5 March 2018) Son-in-law of Chief Executive Offi cer Kunshan Rotam Reddy Pharmaceuticals Enterprise over which the Company exercises joint control with other joint venture 7 Company Limited partners and holds 51.33% of equity shares Enterprise over which the Company exercises joint control with other joint venture 8 DRES Energy Private Limited partners and holds 26% of equity shares 9 Dr. Reddy’s Institute of Life Sciences Enterprise over which whole-time directors have signifi cant infl uence 10 Stamlo Hotels Limited Enterprise controlled by whole-time directors 11 Indus Projects Private Limited Enterprise over which relatives of whole-time directors have signifi cant infl uence 12 CERG Advisory Private Limited Enterprise controlled by Key Managerial Personnel Enterprise over which whole-time directors and their relatives have signifi cant 13 Dr. Reddy’s Foundation infl uence Enterprise over which whole-time directors and their relatives have signifi cant 14 Pudami Educational Society infl uence 15 Green Park Hospitality Services Private Limited Enterprise controlled by relative of a whole-time director 16 Green Park Hotels and Resorts Limited Enterprise controlled by relative of a whole-time director Further, the Company contributes to the Dr. Reddy’s Laboratories Gratuity Fund, which maintains the plan assets of the Company’s Gratuity Plan for the benefi t of its employees. Refer note 2.27 of these consolidated fi nancial statements for information on transactions between the Company and the Gratuity Fund. c) The following is a summary of signifi cant related party transactions: For the year ended For the year ended Particulars 31 March 2019 31 March 2018 Research and development services received Dr. Reddy’s Institute of Life Sciences 97 98

Research and development services provided Kunshan Rotam Reddy Pharmaceuticals Company Limited 103 100

Contributions towards social development Dr. Reddy’s Foundation 192 203 Pudami Educational Society 28 35 Total 220 238

Catering services Green Park Hospitality Services Private Limited 270 178

Hotel expenses Green Park Hotel and Resorts Limited 21 41 Stamlo Hotels Private Limited 5 8 Total 26 49

Civil works Indus Projects Private Limited 106 -

Sales of goods Kunshan Rotam Reddy Pharmaceuticals Company Limited 23 -

226 Company Overview Statutory Reports Financial Statements Annual Report 2018-19

Consolidated NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(All amounts in Indian Rupees millions, except share data and where otherwise stated)

2.24 Related parties For the year ended For the year ended Particulars 31 March 2019 31 March 2018 Professional consulting services 1 -

Salaries to relatives of Key Management Personnel 5 1

Remuneration to Key Management Personnel Salaries and other beneﬁ ts(1) 680 466 Contributions to deﬁ ned contribution plans 35 38 Commission to directors 243 153 Share-based payments expense 101 116 Total 1,059 773

(1) Some of the Key Management Personnel of the Company are also covered under the Company’s Gratuity Plan along with the other employees of the Company. Proportionate amounts of gratuity accrued under the Company’s Gratuity Plan have not been separately computed or included in the above disclosure. d) The Company has the following amounts due from/ to related parties: Particulars As at As at 31 March 2019 31 March 2018 Due from related parties Key Management Personnel (towards rent deposits) 8 8 Green Park Hospitality Services Private Limited 75 40 Kunshan Rotam Reddy Pharmaceuticals Company Limited 11 108 DRES Energy Private Limited 20 - Total 114 156

Due to related parties Dr. Reddy’s Institute of Life Sciences 10 10 Green Park Hospitality Services Private Limited 63 3 Green Park Hotel and Resorts Limited -* 1 Indus Projects Private Limited 7 - Stamlo Hotels Private Limited - -* Total 80 14 * Rounded off to millions.

2.25 Segment reporting The Chief Operating Decision Maker (“CODM”) evaluates the Company’s performance and allocates resources based on an analysis of various performance indicators by operating segments. The CODM reviews revenue and gross proﬁ t as the performance indicator for all of the operating segments, and does not review the total assets and liabilities of an operating segment. The Chief Executive Offi cer is the CODM of the Company. The Company’s reportable operating segments are as follows:

Global Generics;

Pharmaceutical Services and Active Ingredients (“PSAI”); and

Proprietary Products. Global Generics: This segment consists of the Company’s business of manufacturing and marketing prescription and over-the-counter fi nished pharmaceutical products ready for consumption by the patient, marketed either under a brand name (branded formulations) or as generic fi nished dosages with therapeutic equivalence to branded formulations (generics). This segment includes the operations of the Company’s biologics business. Pharmaceutical Services and Active Ingredients: This segment primarily consists of the Company’s business of manufacturing and marketing active pharmaceutical ingredients and intermediates, also known as “API”, which are the principal ingredients for fi nished pharmaceutical products. Active pharmaceutical ingredients and intermediates become fi nished pharmaceutical products when the dosages are fi xed in a form ready for human consumption such as a tablet, capsule or liquid using additional inactive ingredients. This segment also includes the Company’s contract research services business and the manufacture and sale of active pharmaceutical ingredients and steroids in accordance with the specifi c customer requirements. Proprietary Products: This segment consists of the Company’s business that focuses on the research, development, and commercialisation of diff erentiated formulations. These novel products fall within the dermatology and neurology therapeutic areas and are marketed and sold through Promius ® Pharma, LLC.

Building a winning future 227 Dr. Reddy’s Laboratories Limited

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(All amounts in Indian Rupees millions, except share data and where otherwise stated)

2.25 Segment reporting (continued) Others: This includes the operations of the Company’s wholly-owned subsidiary, Aurigene Discovery Technologies Limited, a discovery stage biotechnology company developing novel and best-in-class therapies in the fi elds of oncology and infl ammation and which works with established pharmaceutical and biotechnology companies in early-stage collaborations, bringing drug candidates from hit generation to pre-clinical development. The measurement of each segment’s revenues, expenses and assets is consistent with the accounting policies that are used in preparation of the Company’s consolidated fi nancial statements. Segment information: For the year ended 31 March 2019 Reportable segments Global Proprietary PSAI Others Total Generics Products Revenue from operations(1) 123,056 30,403 4,750 2,058 160,267 Less: Inter-segment revenue(2) - (5,785) - - (5,785) Revenue from operations 123,056 24,618 4,750 2,058 154,482 Gross profi t 71,924 6,158 4,182 1,196 83,460 Less: Selling and other unallocable expense/ (income), net 60,540 Profi t before tax 22,920 Tax expense 3,858 Profi t after tax 19,062 Add: Share of profi t of equity accounted investees, net of tax 438 Profi t for the year 19,500

For the year ended 31 March 2018 Reportable segments Global Proprietary PSAI Others Total Generics Products Revenue from operations(1) 114,282 27,930 4,250 1,840 148,302 Less: Inter-segment revenue(2) - (5,492) - - (5,492) Revenue from operations 114,282 22,438 4,250 1,840 142,810 Gross profi t 67,190 4,477 3,799 869 76,335 Less: Selling and other unallocable expense/ (income), net 62,831 Profi t before tax 13,504 Tax expense 4,380 Profi t after tax 9,124 Add: Share of profi t of equity accounted investees, net of tax 344 Profi t for the year 9,468 (1) Eff ective 1 July 2017, Goods and Services Tax (“GST”) was introduced in India replacing the excise duty and various other taxes. Following the principles of Ind AS 115, Revenue from Contracts with Customers, revenue from operations is disclosed net of GST. For periods prior to 1 July 2017, the excise duty amount was recorded as part of revenue from operations. Accordingly, revenue from operations for the year ended 31 March 2019 are not comparable with those of the previous year presented. Tabulated below are the details of excise duty included in revenue from operations: For the year ended For the year ended Particulars 31 March 2019 31 March 2018 Excise duty included in revenues - 173

(2) Inter-segment revenue represents sale from PSAI to Global Generics at cost. Analysis of revenues within the Global Generics segment: An analysis of revenues (excluding other operating income) by therapeutic areas in the Company’s Global Generics segment is given below: For the year ended For the year ended Particulars 31 March 2019 31 March 2018 Gastrointestinal 19,250 19,153 Oncology 18,357 16,999 Cardiovascular 15,106 16,501 Pain Management 13,806 12,898 Central Nervous System 15,909 12,509 Anti-Infective 7,073 6,557 Others 33,402 29,397 Total 122,903 114,014

228 Company Overview Statutory Reports Financial Statements Annual Report 2018-19

Consolidated NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(All amounts in Indian Rupees millions, except share data and where otherwise stated)

2.25 Segment reporting (continued) Analysis of revenues within the PSAI segment: An analysis of revenues (excluding other operating income) by therapeutic areas in the Company’s PSAI segment is given below: For the year ended For the year ended Particulars 31 March 2019 31 March 2018 Cardiovascular 7,019 6,191 Pain Management 3,364 3,228 Central Nervous System 2,741 2,331 Anti-Infective 1,247 1,968 Dermatology 1,622 1,606 Oncology 2,212 1,650 Others 5,935 5,018 Total 24,140 21,992 Analysis of revenues by geography: The following table shows the distribution of the Company’s revenues (excluding other operating income) by country based on the location of the customers: For the year ended For the year ended Particulars 31 March 2019 31 March 2018 India 28,804 25,209 United States 69,299 68,124 Russia 15,299 12,610 Others 40,449 36,085 Total 153,851 142,028 Analysis of assets by geography: The following table shows the distribution of the Company’s non-current assets (other than ﬁ nancial instruments and deferred tax assets) by country, based on the location of assets: As at As at Particulars 31 March 2019 31 March 2018 India 58,959 61,997 Switzerland 33,537 32,202 United States 6,446 8,483 Germany 2,901 2,968 Others 5,738 5,930 Total 107,581 111,580 The following table shows the distribution of the Company’s property, plant and equipment including capital work in progress and intangible assets acquired during the year (other than goodwill arising on business combination) by country, based on the location of assets: For the year ended For the year ended Particulars 31 March 2019 31 March 2018 India 5,347 8,093 Switzerland 1,112 1,100 United States 215 779 Others 830 1,830 Total 7,504 11,802 Analysis of depreciation and amortisation, for arriving gross proﬁ t by reportable segments: For the year ended For the year ended Particulars 31 March 2019 31 March 2018 Global Generics 3,791 3,549 PSAI 2,876 2,887 Others 71 94 Total 6,738 6,530

Information about major customers: Revenues from two customers of the Company’s Global Generics segment were ` 10,639 and ` 10,024 representing approximately 7 % each of the Company’s total revenues for the year ended 31 March 2019. Revenues from two customers of the Company’s Global Generics segment were ` 13,486 and ` 10,755 representing approximately 9 % and 8 %, respectively of the Company’s total revenues for the year ended 31 March 2018.

Building a winning future 229 Dr. Reddy’s Laboratories Limited

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(All amounts in Indian Rupees millions, except share data and where otherwise stated)

2.26 Description of the Group A. Subsidiaries, step-down subsidiaries, joint ventures and other consolidating entities of the parent company are listed below: Entity Country of incorporation % of Direct/Indirect Ownership Interest Subsidiaries Aurigene Discovery Technologies Limited India 100 Cheminor Investments Limited India 100 Dr. Reddy’s Bio-Sciences Limited India 100 Dr. Reddy’s Farmaceutica Do Brasil Ltda. Brazil 100 Dr. Reddy’s Laboratories SA Switzerland 100 Idea2Enterprises (India) Private Limited India 100 Imperial Credit Private Limited India 100 Industrias Quimicas Falcon de Mexico, S.A.de C.V. Mexico 100 Reddy Antilles N.V. Netherlands 100 Regkinetics Services Limited (formerly Dr. Reddy’s Pharma SEZ Limited ) India 100

Step-down subsidiaries Aurigene Discovery Technologies (Malaysia) SDN BHD Malaysia 100(3) Aurigene Discovery Technologies Inc. USA 100(3) beta Institut gemeinnützige GmbH Germany 100(8) betapharm Arzneimittel GmbH Germany 100(8) Chirotech Technology Limited United Kingdom 100(5) DRL Impex Limited India 100(15) Dr. Reddy’s Laboratories (Australia) Pty. Limited Australia 100(10) Dr. Reddy’s Laboratories Canada, Inc. Canada 100(10) Dr. Reddy’s Laboratories Chile SPA.(from 16 June 2017) Chile 100(10) Dr. Reddy’s Laboratories Kazakhstan LLP Kazakhstan 100(10) Dr. Reddy’s Laboratories LLC Ukraine 100(10) Dr. Reddy’s Laboratories Louisiana LLC USA 100(6) Dr. Reddy’s Laboratories Malaysia Sdn. Bhd. (from 10 July 2017) Malaysia 100(10) Dr. Reddy’s Laboratories New York, Inc. USA 100(10) Dr. Reddy’s Laboratories Philippines Inc.(from 9 May 2018) Philippines 100(10) Dr. Reddy’s Laboratories (Proprietary) Limited South Africa 100(10) Dr. Reddy’s Laboratories Romania S.R.L. Romania 100(10) Dr. Reddy’s Laboratories SAS Colombia 100(10) Dr. Reddy’s Laboratories Taiwan Limited (from 23 February 2018) Taiwan 100(10) Dr. Reddy’s Laboratories Tennessee, LLC (till 1 October 2018) USA 100(6) Dr. Reddy’s Laboratories (Thailand) Limited (from 13 June 2018) Thailand 100(10) Dr. Reddy’s Laboratories (UK) Limited United Kingdom 100(5) Dr. Reddy’s Research and Development B.V. Netherlands 100(12) Dr. Reddy’s Singapore PTE Limited Singapore 100(10)(2) Dr. Reddy’s Srl Italy 100(11) Dr. Reddy’s New Zealand Limited New Zealand 100(10) Dr. Reddy’s (WUXI) Pharmaceutical Co. Limited (from 2 June 2017) China 100(10) Dr. Reddy’s Venezuela, C.A. Venezuela 100(10) Dr. Reddy’s Laboratories (EU) Limited United Kingdom 100(10) Dr. Reddy’s Laboratories Inc. USA 100(10) Dr. Reddy’s Laboratories International SA Switzerland 100(10) Dr. Reddy’s Laboratories Japan KK Japan 100(10) Eurobridge Consulting B.V. Netherlands 100(1) Lacock Holdings Limited Cyprus 100(10) OOO Dr. Reddy’s Laboratories Limited Russia 100(10) OOO DRS LLC Russia 100(9) Promius Pharma LLC USA 100(6) Reddy Holding GmbH Germany 100(10) Reddy Netherlands B.V. Netherlands 100(10) Reddy Pharma Iberia SA Spain 100(10) Reddy Pharma Italia S.R.L Italy 100(7) Reddy Pharma SAS France 100(10)

230 Company Overview Statutory Reports Financial Statements Annual Report 2018-19

Consolidated NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(All amounts in Indian Rupees millions, except share data and where otherwise stated)

2.26 Description of the Group (continued) Entity Country of incorporation % of Direct/Indirect Ownership Interest Joint ventures DRANU LLC USA 50(13) DRES Energy Private Limited India 26(14) Kunshan Rotam Reddy Pharmaceutical Company Limited China 51.33(4)

Other consolidating entities Cheminor Employees Welfare Trust India Refer to footnote 16 Dr. Reddy’s Employees ESOS Trust (from 27 July 2018) India Refer to footnote 16 Dr. Reddy’s Research Foundation India Refer to footnote 16 (1) Indirectly owned through Dr. Reddy’s Research and Development B.V. (2) Entities under liquidation. (3) Indirectly owned through Aurigene Discovery Technologies Limited. (4) Kunshan Rotam Reddy Pharmaceutical Co. Limited is a subsidiary as per Indian Companies Act, 2013, as the Company holds a 51.33% stake. However, the Company accounts for this investment by the equity method and does not consolidate it in the Company’s consolidated fi nancial statements. (5) Indirectly owned through Dr. Reddy’s Laboratories (EU) Limited. (6) Indirectly owned through Dr. Reddy’s Laboratories Inc. (7) Indirectly owned through Lacock Holdings Limited. (8) Indirectly owned through Reddy Holding GmbH. (9) Indirectly owned through OOO Dr. Reddy’s Laboratories Limited (from January, 2019), formerly subsidiary of Eurobridge consulting B.V. (10) Indirectly owned through Dr. Reddy’s Laboratories SA. (11) Indirectly owned through Reddy Pharma Italia S.R.L. (12) Indirectly owned through Reddy Netherlands B.V. (13) DRANU LLC is consolidated in accordance with guidance available in Ind AS 110. (14) Accounted in accordance with Ind AS 111, Joint Arrangements. (15) Indirectly owned through Idea2Enterprises (India) Private Limited. (16) The Company does not have any equity interests in this entity, but has signifi cant infl uence or control over it. B. Additional information pursuant to para 2 of general instructions for the preparation of consolidated fi nancial statements: As at 31 March 2019 For the year ended 31 March 2019 Net assets, i.e., Share in total total assets minus Share in profi t or loss Share in OCI comprehensive Sl. Name of the entity total liabilities income (TCI) No. As % of As % of As % of As % of consolidated Amount consolidated Amount consolidated Amount consolidated Amount net assets profi t or loss OCI TCI Parent Dr. Reddy’s Laboratories Limited 90.45 126,841 65.50 12,773 (12.70) 138 70.12 12,911

Subsidiaries India 1 Aurigene Discovery Technologies Limited 0.26 370 2.36 461 76.17 (828) (1.99) (367) 2 Cheminor Investments Limited - 1 ------3 Dr. Reddy’s Bio-Sciences Limited 0.18 257 (0.21) (40) - - (0.22) (40) 4 DRL Impex Limited - (2) ------5 Idea2Enterprises (India) Private Limited 1.10 1,536 ------6 Imperial Credit Private Limited 0.02 23 0.01 1 - - 0.01 1 Regkinetics Services Limited 7 0.15 207 0.05 9 - - 0.05 9 (formerly Dr. Reddy’s Pharma SEZ Limited) Foreign Aurigene Discovery Technologies (Malaysia) SDN 1 0.02 30 0.01 2 - - 0.01 2 BHD 2 Aurigene Discovery Technologies Inc. - 1 ------3 beta Institut gemeinnützige GmbH - 6 (0.01) (1) - - (0.01) (1) 4 betapharm Arzneimittel GmbH 0.05 71 0.21 40 - - 0.22 40 5 Chirotech Technology Limited 0.80 1,117 0.10 20 - - 0.11 20 6 Dr. Reddy’s Farmaceutica Do Brasil Ltda. (0.21) (299) 1.69 329 - - 1.79 329 7 Dr. Reddy’s Laboratories (Australia) Pty. Limited (0.22) (304) 0.19 38 - - 0.21 38

Building a winning future 231 Dr. Reddy’s Laboratories Limited

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(All amounts in Indian Rupees millions, except share data and where otherwise stated)

2.26 Description of the Group (continued) As at 31 March 2019 For the year ended 31 March 2019 Net assets, i.e., Share in total total assets minus Share in proﬁ t or loss Share in OCI comprehensive Sl. Name of the entity total liabilities income (TCI) No. As % of As % of As % of As % of consolidated Amount consolidated Amount consolidated Amount consolidated Amount net assets proﬁ t or loss OCI TCI 8 Dr. Reddy’s Laboratories (Canada) Inc. 0.21 300 0.99 193 - - 1.05 193 Dr. Reddy’s Laboratories Chile SPA. 9 (0.01) (11) (0.21) (41) - - (0.22) (41) (from 16 June 2017) 10 Dr. Reddy’s Laboratories (EU) Limited 1.52 2,130 3.78 737 - - 4.00 737 11 Dr. Reddy’s Laboratories Inc. 7.17 10,056 (53.99) (10,528) - - (57.18) (10,528) 12 Dr. Reddy’s Laboratories International SA 0.20 278 ------13 Dr. Reddy’s Laboratories Japan KK - 3 (0.08) (16) - - (0.09) (16) 14 Dr. Reddy’s Laboratories Kazakhstan LLP 0.14 190 0.01 2 - - 0.01 2 15 Dr. Reddy’s Laboratories LLC 0.07 93 0.36 70 - - 0.38 70 16 Dr. Reddy’s Laboratories Louisiana LLC (0.32) (452) (3.95) (771) - - (4.19) (771) Dr. Reddy’s Laboratories Malaysia Sdn. Bhd. 17 0.02 27 (0.04) (8) - - (0.04) (8) (from 10 July 2017) 18 Dr. Reddy’s Laboratories New York, Inc. (1.11) (1,556) (2.18) (426) - - (2.31) (426) Dr. Reddy’s Laboratories Philippines Inc. 19 0.01 8 (0.02) (4) - - (0.02) (4) (from 9 May 2018) 20 Dr. Reddy’s Laboratories (Proprietary) Limited 0.21 290 0.48 94 - - 0.51 94 21 Dr. Reddy’s Laboratories Romania S.R.L. 0.19 261 0.13 25 - - 0.14 25 22 Dr. Reddy’s Laboratories SA 31.85 44,665 23.28 4,539 2.21 (24) 24.52 4,515 23 Dr. Reddy’s Laboratories SAS 0.07 98 (0.01) (1) - - (0.01) (1) Dr. Reddy’s Laboratories Taiwan Ltd. 24 - 2 (0.05) (10) - - (0.05) (10) (from 23 February 2018) 25 Dr. Reddy’s Laboratories Tennessee, LLC (till 1 October 2018) - - (0.78) (152) - - (0.83) (152) Dr. Reddy’s Laboratories (Thailand) Limited 26 - 3 (0.10) (20) - - (0.11) (20) (from 13 June 2018) 27 Dr. Reddy’s Laboratories (UK) Limited 1.89 2,648 1.06 207 - - 1.12 207 Dr. Reddy’s Research and Development B.V. 28 (0.47) (660) (0.56) (110) - - (0.60) (110) (formerly Octoplus B.V.) 29 Dr. Reddy’s Singapore PTE Limited (under liquidation) - - 0.02 3 - - 0.02 3 30 Dr. Reddy’s Srl (0.58) (809) 0.02 3 - - 0.02 3 31 Dr. Reddy’s New Zealand Limited 0.05 64 0.02 4 - - 0.02 4 Dr. Reddy’s (WUXI) Pharmaceutical Co. Ltd. 32 0.02 27 0.11 21 - - 0.11 21 (from 2 June 2017) 33 Dr. Reddy’s Venezuela, C.A. (3.11) (4,368) (1.14) (222) - - (1.21) (222) 34 Eurobridge Consulting B.V. 0.19 261 (1.10) (214) - - (1.16) (214) 35 Industrias Quimicas Falcon de Mexico, S.A. de CV 0.46 651 (0.35) (68) (2.30) 25 (0.23) (43) 36 Lacock Holdings Limited 0.11 151 0.11 22 - - 0.12 22 37 OOO Dr. Reddy’s Laboratories Limited 1.66 2,334 1.81 352 - - 1.91 352 38 OOO DRS LLC 0.07 104 (0.05) (10) - - (0.05) (10) 39 Promius Pharma LLC 0.35 494 3.12 608 - - 3.30 608 40 Reddy Antilles N.V. 0.05 65 (0.15) (30) - - (0.16) (30) 41 Reddy Holding GmbH 14.80 20,751 2.54 496 - - 2.69 496 42 Reddy Netherlands B.V. 2.02 2,828 (0.14) (28) - - (0.15) (28) 43 Reddy Pharma Iberia SA 0.03 44 (0.27) (52) - - (0.28) (52) 44 Reddy Pharma Italia S.R.L 0.02 34 (0.01) (1) - - (0.01) (1) 45 Reddy Pharma SAS 0.03 44 (0.47) (91) - - (0.49) (91)

Joint ventures India 1 DRES Energy Private Limited - - (0.06) (11) - - (0.06) (11) Foreign 1 DRANU LLC ------Kunshan Rotam Reddy Pharmaceutical Company 2 - - 2.30 449 - - 2.44 449 Limited

232 Company Overview Statutory Reports Financial Statements Annual Report 2018-19

Consolidated NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(All amounts in Indian Rupees millions, except share data and where otherwise stated)

Sub total 150.61 211,188 44.40 8,656 63.38 (689) 43.28 7,967 Less: Eff ect of intercompany adjustments / (50.61) (70,952) 55.60 10,844 36.62 (398) 56.72 10,446 eliminations Total 100.00 140,236 100.00 19,500 100.00 (1,087) 100.00 18,413 Note: Net assets and share in profi t or loss for the Parent Company, subsidiaries, joint ventures and other consolidating entities are as per the standalone fi nancial statements of the respective entities. 2.27 Employee benefi ts Total employee benefi t expenses, including share-based payments, incurred during the years ended 31 March 2019 and 31 March 2018 amounted to ` 33,562 and ` 32,149, respectively. Gratuity benefi ts provided by the parent company In accordance with applicable Indian laws, the Company has a defi ned benefi t plan which provides for gratuity payments (the “Gratuity Plan”) and covers certain categories of employees in India. The Gratuity Plan provides a lump sum gratuity payment to eligible employees at retirement or termination of their employment. The amount of the payment is based on the respective employee’s last drawn salary and the years of employment with the Company. Eff ective 1 September 1999, the Company established the Dr. Reddy’s Laboratories Gratuity Fund (the “Gratuity Fund”) to fund the Gratuity Plan. Liabilities in respect of the Gratuity Plan are determined by an actuarial valuation, based upon which the Company makes contributions to the Gratuity Fund. Trustees administer the contributions made to the Gratuity Fund. Amounts contributed to the Gratuity Fund are invested in bonds issued by the Government of India and in debt securities and equity securities of Indian companies. The components of gratuity cost recognised in the consolidated statement of profi t and loss for the years ended 31 March 2019 and 31 March 2018 consist of the following: For the year ended For the year ended Particulars 31 March 2019 31 March 2018 Current service cost 265 252 Interest on net defi ned benefi t liability (2) 6 Gratuity cost recognised in consolidated statement of profi t and loss 263 258 Details of the employee benefi ts obligations and plan assets are provided below: As at As at Particulars 31 March 2019 31 March 2018 Present value of funded obligations 2,200 2,007 Fair value of plan assets (2,174) (1,958) Net defi ned benefi t liability recognised 26 49 Details of changes in the present value of defi ned benefi t obligations are as follows: As at As at Particulars 31 March 2019 31 March 2018 Defi ned benefi t obligations at the beginning of the year 2,007 1,840 Current service cost 265 252 Interest on defi ned obligations 145 125 Re-measurements due to: Actuarial loss/(gain) due to change in fi nancial assumptions 28 (121) Actuarial loss/(gain) due to demographic assumptions -* 11 Actuarial loss/(gain) due to experience changes -* 62 Benefi ts paid (245) (162) Defi ned benefi t obligations at the end of the year 2,200 2,007 * Rounded off to millions.

Building a winning future 233 Dr. Reddy’s Laboratories Limited

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(All amounts in Indian Rupees millions, except share data and where otherwise stated)

2.27 Employee beneﬁ ts (continued) Details of changes in the fair value of plan assets are as follows: As at As at Particulars 31 March 2019 31 March 2018 Fair value of plan assets at the beginning of the year 1,958 1,687 Employer contributions 294 313 Interest on plan assets 147 121 Re-measurements due to: Return on plan assets excluding interest on plan assets 20 (1) Beneﬁ ts paid (245) (162) Plan assets at the end of the year 2,174 1,958

Sensitivity analysis: As at Particulars 31 March 2019 Defi ned benefi t obligation without eff ect of projected salary growth 1,276 Add: Eff ect of salary growth 924 Defi ned benefi t obligation with projected salary growth 2,200 Defi ned benefi t obligation, using discount rate minus 50 basis points 2,282 Defi ned benefi t obligation, using discount rate plus 50 basis points 2,123 Defi ned benefi t obligation, using salary growth rate plus 50 basis points 2,280 Defi ned benefi t obligation, using salary growth rate minus 50 basis points 2,123 Summary of the actuarial assumptions: The actuarial assumptions used in accounting for the Gratuity Plan are as follows: The assumptions used to determine benefi t obligations: For the year ended For the year ended Particulars 31 March 2019 31 March 2018 Discount rate 7.45% 7.75% 8% per annum for the 7% per annum for the Rate of compensation increase fi rst year and 9% per fi rst year and 9% per annum thereafter annum thereafter The assumptions used to determine gratuity cost: For the year ended For the year ended Particulars 31 March 2019 31 March 2018 Discount rate 7.75% 7.20% 7% per annum for the 7% per annum for the Rate of compensation increase fi rst year and 9% per fi rst year and 9% per annum thereafter annum thereafter

Contributions: The Company expects to contribute ` 26 to the Gratuity Plan during the year ending 31 March 2020. Disaggregation of plan assets: The Gratuity Plan’s weighted-average asset allocation at 31 March 2019 and 31 March 2018, by asset category, was as follows: As at As at Particulars 31 March 2019 31 March 2018 Funds managed by insurers 99% 99% Others 1% 1% The expected future cash ﬂ ows in respect of gratuity as at 31 March 2019 were as follows: Particulars Amount Expected contributions During the year ended 31 March 2020 (estimated) 26 Expected future beneﬁ t payments 31 March 2020 306 31 March 2021 218 31 March 2022 220 31 March 2023 225 31 March 2024 220 Thereafter 3,111

234 Company Overview Statutory Reports Financial Statements Annual Report 2018-19

Consolidated NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(All amounts in Indian Rupees millions, except share data and where otherwise stated)

2.27 Employee benefi ts (continued) Pension plan of the Company’s subsidiary, Industrias Quimicas Falcon de Mexico All employees of the Company’s Mexican subsidiary, Industrias Quimicas Falcon de Mexico (“Falcon”), are entitled to a pension benefi t in the form of a defi ned benefi t pension plan. The Falcon pension plan provides for payment to vested employees at retirement or termination of employment. Liabilities in respect of the pension plan are determined by an actuarial valuation, based on which the Company makes contributions to the pension plan fund. This fund is administered by a third party, who is provided guidance by a technical committee formed by senior employees of Falcon. The components of net pension cost recognised in the consolidated statement of profi t and loss for the years ended 31 March 2019 and 31 March 2018 consist of the following: For the year ended For the year ended Particulars 31 March 2019 31 March 2018 Current service cost 13 12 Interest on net defi ned benefi t liability 15 13 Total cost recognised in consolidated statement of profi t and loss 28 25

Details of the employee benefi ts obligation and plan assets are provided below: As at As at Particulars 31 March 2019 31 March 2018 Present value of funded obligations 223 243 Fair value of plan assets (70) (66) Net defi ned benefi t liability recognised 153 177 Details of changes in the present value of defi ned benefi t obligations are as follows: As at As at Particulars 31 March 2019 31 March 2018 Defi ned benefi t obligations at the beginning of the year 243 218 Current service cost 13 12 Interest on defi ned obligations 22 19 Re-measurements due to: Actuarial loss/(gain) due to change in fi nancial assumptions (47) (6) Actuarial loss/(gain) due to experience changes 7 (0) Benefi ts paid (16) (8) Foreign exchange diff erences 1 8 Defi ned benefi t obligations at the end of the year 223 243 Details of changes in the fair value of plan assets are as follows: As at As at Particulars 31 March 2019 31 March 2018 Fair value of plan assets at the beginning of the year 66 60 Employer contributions 16 8 Interest on plan assets 7 7 Re-measurements due to: Return on plan assets excluding interest on plan assets (3) (3) Benefi ts paid (16) (8) Foreign exchange diff erences -* 2 Plan assets at the end of the year 70 66 * Rounded off to millions. Sensitivity analysis: As at Particulars 31 March 2019 Defi ned benefi t obligation without eff ect of projected salary growth 154 Add: Eff ect of salary growth 69 Defi ned benefi t obligation with projected salary growth 223 Defi ned benefi t obligation, using discount rate minus 50 basis points 232 Defi ned benefi t obligation, using discount rate plus 50 basis points 214 Defi ned benefi t obligation, using salary growth rate plus 50 basis points 232 Defi ned benefi t obligation, using salary growth rate minus 50 basis points 213

Building a winning future 235 Dr. Reddy’s Laboratories Limited

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(All amounts in Indian Rupees millions, except share data and where otherwise stated)

2.27 Employee benefi ts (continued) Summary of the actuarial assumptions: The actuarial assumptions used in accounting for the Falcon defi ned benefi t plans are as follows: The assumptions used to determine benefi t obligations: For the year ended For the year ended Particulars 31 March 2019 31 March 2018 Discount rate 11.25% 9.00% Rate of compensation increase 4.50% 4.50%

The assumptions used to determine deﬁ ned beneﬁ t cost: For the year ended For the year ended Particulars 31 March 2019 31 March 2018 Discount rate 9.00% 8.75% Rate of compensation increase 4.50% 4.50%

Contributions: The Company expects to contribute ` 36 to the Falcon deﬁ ned beneﬁ t plans during the year ending 31 March 2020. Disaggregation of plan assets: The Falcon pension plan’s weighted-average asset allocation at 31 March 2019 and 31 March 2018, by asset category is as follows: As at As at Particulars 31 March 2019 31 March 2018 Corporate bonds 51% 51% Others 49% 49%

The expected future cash fl ows in respect of post-employment benefi t plans in Mexico as at 31 March 2019 were as follows: Particulars Amount Expected contribution During the year ended 31 March 2020 (estimated) 36 Expected future benefi t payments 31 March 2020 5 31 March 2021 7 31 March 2022 10 31 March 2023 12 31 March 2024 19 Thereafter 627 Provident fund benefi ts Certain categories of employees of the Company receive benefi ts from a provident fund, a defi ned contribution plan. Both the employee and employer each make monthly contributions to a government administered fund equal to 12% of the covered employee’s qualifying salary. The Company has no further obligations under the plan beyond its monthly contributions. The Company contributed ` 740 and ` 735 to the provident fund plan during the years ended 31 March 2019 and 31 March 2018, respectively. Superannuation benefi ts Certain categories of employees of the Company participate in superannuation, a defi ned contribution plan administered by the Life Insurance Corporation of India. The Company makes monthly contributions based on a specifi ed percentage of each covered employee’s salary. The Company has no further obligations under the plan beyond its monthly contributions. The Company contributed ` 84 and ` 88 to the superannuation plan during the years ended 31 March 2019 and 31 March 2018, respectively. Other contribution plans In the United States, the Company sponsors a defi ned contribution 401(k) retirement savings plan for all eligible employees who meet minimum age and service requirements. The Company contributed ` 213 and ` 212 to the 401(k) retirement savings plan during the years ended 31 March 2019 and 31 March 2018, respectively. The Company has no further obligations under the plan beyond its monthly matching contributions. In the United Kingdom, certain social security benefi ts (such as pension, unemployment and disability) are funded by employers and employees through mandatory National Insurance contributions. The contribution amounts are determined based upon the employee’s salary. The Company has no further obligations under the plan beyond its monthly contributions. The Company contributed ` 148 and ` 135 to the National Insurance during the years ended 31 March 2019 and 31 March 2018, respectively. Compensated absences The Company provides for accumulation of compensated absences by certain categories of its employees. These employees can carry forward a portion of the unutilised compensated absences and utilise them in future periods or receive cash in lieu thereof as per the Company’s policy. The Company records a liability for compensated absences in the period in which the employee renders the services that increases this entitlement. The total liability recorded by the Company towards this obligation was ` 1,089 and ` 1,093 as at 31 March 2019 and 31 March 2018, respectively.

236 Company Overview Statutory Reports Financial Statements Annual Report 2018-19

Consolidated NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(All amounts in Indian Rupees millions, except share data and where otherwise stated)

2.28 Employee stock incentive plans Dr. Reddy’s Employees Stock Option Plan, 2002 (the “DRL 2002 Plan”): The Company instituted the DRL 2002 Plan for all eligible employees pursuant to the special resolution approved by the shareholders in the Annual General Meeting held on 24 September 2001. The DRL 2002 Plan covers all employees of DRL and its subsidiaries and directors (excluding promoter directors) of DRL and its subsidiaries (collectively, “eligible employees”). The Nomination, Governance and Compensation Committee of the Board of DRL (the “Committee”) administer the DRL 2002 Plan and grants stock options to eligible employees. The Committee determines which eligible employees will receive options, the number of options to be granted, the exercise price, the vesting period and the exercise period. The vesting period is determined for all options issued on the date of grant. The options issued under the DRL 2002 Plan vest in periods ranging between one and four years and generally have a maximum contractual term of ﬁ ve years. The DRL 2002 Plan, as amended at annual general meetings of shareholders held on 28 July 2004 and on 27 July 2005, provides for stock option grants in two categories: Category A: 300,000 stock options out of the total of 2,295,478 options reserved for grant having an exercise price equal to the fair market value of the underlying equity shares on the date of grant; and Category B: 1,995,478 stock options out of the total of 2,295,478 options reserved for grant having an exercise price equal to the par value of the underlying equity shares (i.e., ` 5 per option). Under the DRL 2002 Plan, the exercise price of the fair market value options granted under Category A above is determined based on the average closing price for 30 days prior to the grant in the stock exchange where there is highest trading volume during that period. Notwithstanding the foregoing, the Committee may, after obtaining the approval of the shareholders in the annual general meeting, grant options with a per share exercise price other than fair market value and par value of the equity shares. After the stock split eff ected in the form of stock dividend issued by the Company in August 2006, the DRL 2002 Plan provides for stock option grants in the above two categories as follows: Number of options Number of options Particulars reserved under reserved under Total category A category B Options reserved under original plan 300,000 1,995,478 2,295,478 Options exercised prior to stock dividend date (A) 94,061 147,793 241,854 Balance of shares that can be allotted on exercise of options (B) 205,939 1,847,685 2,053,624 Options arising from stock dividend (C) 205,939 1,847,685 2,053,624 Options reserved after stock dividend (A+B+C) 505,939 3,843,163 4,349,102 The term of the DRL 2002 plan was extended for a period of 10 years eff ective as of 29 January 2012 by the shareholders at the Company’s Annual General Meeting held on 20 July 2012. Stock option activity under the DRL 2002 Plan for the two categories of options during the years ended 31 March 2019 and 31 March 2018 is as follows: Category A — Fair Market Value Options: There was no stock options activity under this category during the year 31 March 2019 and 31 March 2018 and there were no stock options outstanding under this category as of 31 March 2019 and 31 March 2018. Category B — Par Value Options For the year ended 31 March 2019 Weighted Weighted average Shares arising out Range of exercise Particulars average remaining useful of options prices exercise price life (months) Outstanding at the beginning of the year 320,544 5.00 5.00 70 Granted during the year 122,372 5.00 5.00 90 Expired/forfeited during the year (50,651) 5.00 5.00 - Exercised during the year (122,124) 5.00 5.00 - Outstanding at the end of the year 270,141 5.00 5.00 73 Exercisable at the end of the year 32,836 5.00 5.00 42

Building a winning future 237 Dr. Reddy’s Laboratories Limited

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(All amounts in Indian Rupees millions, except share data and where otherwise stated)

2.28 Employee stock incentive plans (continued) The weighted average grant date fair value of options granted during the years ended 31 March 2019 and 31 March 2018 was ` 2,195 and ` 2,546 per option, respectively. The weighted average share price on the date of exercise of options during the years ended 31 March 2019 and 31 March 2018 was ` 2,302 and ` 2,375 per share, respectively. The aggregate intrinsic value of options exercised during the years ended 31 March 2019 and 31 March 2018 was ` 281 and ` 342, respectively. As of 31 March 2019, options outstanding had an aggregate intrinsic value of ` 750 and options exercisable had an aggregate intrinsic value of ` 91. Dr. Reddy’s Employees ADR Stock Option Plan, 2007 (the “DRL 2007 Plan”): The Company instituted the DRL 2007 Plan for all eligible employees in pursuance of the special resolution approved by the shareholders in the Annual General Meeting held on 27 July 2005. The DRL 2007 Plan became eff ective upon its approval by the Board of Directors on 22 January 2007. The DRL 2007 Plan covers all employees and directors (excluding promoter directors) of DRL and its subsidiaries (collectively, “eligible employees”). The Committee administers the DRL 2007 Plan and grants stock options to eligible employees. The Committee determines which eligible employees will receive the options, the number of options to be granted, the exercise price, the vesting period and the exercise period. The vesting period is determined for all options issued on the date of grant. The options issued under the DRL 2007 Plan vest in periods ranging between one and four years and generally have a maximum contractual term of ﬁ ve years. The DRL 2007 Plan provides for option grants in two categories: Category A: 382,695 stock options out of the total of 1,530,779 stock options reserved for grant having an exercise price equal to the fair market value of the underlying equity shares on the date of grant; and Category B: 1,148,084 stock options out of the total of 1,530,779 stock options reserved for grant having an exercise price equal to the par value of the underlying equity shares (i.e., ` 5 per option). Stock option activity under the DRL 2007 Plan for the two categories of options during the years ended 31 March 2019 and 31 March 2018 is as follows: Category A — Fair Market Value Options For the year ended 31 March 2019 Weighted Weighted average Shares arising out Range of exercise Particulars average remaining useful of options prices exercise price life (months) Outstanding at the beginning of the year - - - 73 Granted during the year 149,160 1,982.00/ 2,607.00 2,176.00 90 Expired/forfeited during the year (3,100) 2,607.00 2,607.00 - Exercised during the year ---- Outstanding at the end of the year 146,060 1,982.00/ 2,607.00 2,166.00 81 Exercisable at the end of the year - - - -

Category B — Par Value Options For the year ended 31 March 2019 Weighted Weighted average Shares arising out Range of exercise Particulars average remaining useful of options prices exercise price life (months) Outstanding at the beginning of the year 107,308 5.00 5.00 73 Granted during the year 70,730 5.00 5.00 90 Expired/forfeited during the year (29,966) 5.00 5.00 - Exercised during the year (32,917) 5.00 5.00 - Outstanding at the end of the year 115,155 5.00 5.00 73 Exercisable at the end of the year 9,229 5.00 5.00 43

238 Company Overview Statutory Reports Financial Statements Annual Report 2018-19

Consolidated NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(All amounts in Indian Rupees millions, except share data and where otherwise stated)

2.28 Employee stock incentive plans (continued) The weighted average grant date fair value of options granted during the years ended 31 March 2019 and 31 March 2018 was ` 2,056 and ` 2,540 per option, respectively. The weighted average share price on the date of exercise of options during the years ended 31 March 2019 and 31 March 2018 was ` 2,445 and ` 2,295 per share, respectively. The aggregate intrinsic value of options exercised during the years ended 31 March 2019 and 31 March 2018 was ` 80 and ` 57, respectively. As of 31 March 2019, options outstanding had an aggregate intrinsic value of ` 320 and options exercisable had an aggregate intrinsic value of ` 26. Dr. Reddy’s Employees Stock Option Scheme, 2018 (the “DRL 2018 Plan”): The Company instituted the DRL 2018 Plan for all eligible employees pursuant to the special resolution approved by the shareholders at the Annual General Meeting held on 27 July 2018. The DRL 2018 Plan covers all employees and directors (excluding independent and promoter directors) of the parent company and its subsidiaries (collectively, “eligible employees”). Upon the exercise of options granted under the DRL 2018 Plan, the applicable equity shares may be issued directly by the Company to the eligible employee or may be transferred from the Dr. Reddy’s Employees ESOS Trust (the “ESOS Trust”) to the eligible employee. The ESOS Trust may acquire such equity shares through primary issuances by the Company and/or by way of secondary market acquisitions funded through loans from the Company. The Nomination, Governance and Compensation Committee of the Board of the parent company (the “Compensation Committee”) administers the DRL 2018 Plan and grants stock options to eligible employees, but may delegate functions and powers relating to the administration of the DRL 2018 Plan to the ESOS Trust. The Compensation Committee determines which eligible employees will receive the options, the number of options to be granted, the exercise price, the vesting period and the exercise period. The vesting period is determined for all options issued on the date of grant. The options issued under the DRL 2018 Plan vest in periods ranging between the end of one and ﬁ ve years, and generally have a maximum contractual term of ﬁ ve years. The DRL 2018 Plan provides for option grants having an exercise price equal to the fair market value of the underlying equity shares on the date of grant as follows: Number of securities Number of securities Particulars to be acquired from to be issued by the Total secondary market Company Options reserved against equity shares 2,500,000 1,500,000 4,000,000 Options reserved against ADRs - 1,000,000 1,000,000 Total 2,500,000 2,500,000 5,000,000

The weighted average grant date fair value of options granted during the year ended 31 March 2019 was ` 667 per option. As of 31 March 2019, options outstanding had an aggregate intrinsic value of ` 40. Valuation of stock options: The fair value of services received in return for stock options granted to employees is measured by reference to the fair value of stock options granted. The fair value of stock options granted under the DRL 2002 Plan, the DRL 2007 Plan and the DRL 2018 Plan has been measured using the Black–Scholes-Merton model at the date of the grant. The Black-Scholes-Merton model includes assumptions regarding dividend yields, expected volatility, expected terms and risk free interest rates. In respect of par value options granted, the expected term of an option (or “option life”) is estimated based on the vesting term and contractual term, as well as the expected exercise behavior of the employees receiving the option. In respect of fair market value options granted, the option life is estimated based on the simpliﬁ ed method. Expected volatility of the option is based on historical volatility, during a period equivalent to the option life, of the observed market prices of the Company’s publicly traded equity shares. Dividend yield of the options is based on recent dividend activity. Risk-free interest rates are based on the government securities yield in eff ect at the time of the grant. These assumptions reﬂ ect management’s best estimates, but these assumptions involve inherent market uncertainties based on market conditions generally outside of the Company’s control.

Building a winning future 239 Dr. Reddy’s Laboratories Limited

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(All amounts in Indian Rupees millions, except share data and where otherwise stated)

2.28 Employee stock incentive plans (continued) As a result, if other assumptions had been used in the current period, stock-based compensation expense could have been materially impacted. Further, if management uses diff erent assumptions in future periods, stock-based compensation expense could be materially impacted in future years. The estimated fair value of stock options is recognised in the consolidated statement of profi t and loss on a straight-line basis over the requisite service period for each separately vesting portion of the award as if the award was, in-substance, multiple awards. The weighted average inputs used in computing the fair value of options granted during the years ended 31 March 2019 and 31 March 2018 were as follows: Grants made on Particulars 31 January 2019 21 September 2018 26 July 2018 21 May 2018 10 July 2017 11 May 2017 Expected volatility 32.92% 33.98% 34.89% 32.97% 30.86% 31.08% ` 5.00/ ` 5.00/ Exercise price ` 5.00 ` 5.00 ` 5.00 ` 5.00 ` 2,607.00 ` 1,982.00 Option life 2.5 Years 2.5 Years 2.5 Years 2.5 Years 2.5 Years 2.5 Years Risk-free interest rate 7.00% 7.90% 7.47% 7.46% 6.48% 6.69% Expected dividends 0.74% 0.78% 0.94% 1.06% 0.77% 0.77% Grant date share price ` 2,720.80 ` 2,556.25 ` 2,132.75 ` 1,893.05 ` 2,726.20 ` 2,594.00 Share-based payment expense For the year ended For the year ended Particulars 31 March 2019 31 March 2018 Equity settled share-based payment expense(1) 389 454 Cash settled share-based payment expense(2) 85 28 474 482 (1) As of 31 March 2019, there was ` 519 of total unrecognised compensation cost related to unvested stock options. This cost is expected to be recognised over a weighted-average period of 2.09 years. (2) Certain of the Company’s employees are eligible for share-based payment awards that are settled in cash. These awards entitle the employees to a cash payment, on the exercise date, subject to vesting upon satisfaction of certain service conditions which range from one to four years. The amount of cash payment is determined based on the price of the Company’s ADSs at the time of vesting. As of 31 March 2019, there was ` 101 of total unrecognised compensation cost related to unvested awards. This cost is expected to be recognised over a weighted-average period of 1.95 years. This scheme does not involve dealing in or subscribing to or purchasing securities of the Company, directly or indirectly. 2.29 Income taxes a) Income tax expense/(benefi t) recognised in the consolidated statement of profi t and loss Income tax expense recognised in the consolidated statement of profi t and loss consists of the following: For the year ended For the year ended Particulars 31 March 2019 31 March 2018 Current taxes Domestic 3,003 1,387 Foreign 1,704 366 4,707 1,753 Deferred taxes Domestic 244 (78) Foreign (1,093) 2,705 (849) 2,627 Total income tax expense recognised in the consolidated statement of profi t and loss 3,858 4,380 b) Income tax expense/(benefi t) recognised directly in equity Income tax expense/(benefi t) recognised directly in equity consist of the following: For the year ended For the year ended Particulars 31 March 2019 31 March 2018 Tax eff ect on changes in fair value of investments 411 (893) Tax eff ect on foreign currency translation diff erences (15) 17 Tax eff ect on eff ective portion of change in fair value of cash flow hedges 69 (40) Tax eff ect on actuarial gains/losses on defi ned benefi t obligations 7 19 Total income tax expense/(benefi t) recognised in the equity 472 (897)

240 Company Overview Statutory Reports Financial Statements Annual Report 2018-19

Consolidated NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(All amounts in Indian Rupees millions, except share data and where otherwise stated)

2.29 Income taxes (continued) c) Reconciliation of eff ective tax rate The following is a reconciliation of the Company’s eff ective tax rates for the years ended 31 March 2019 and 31 March 2018: For the year ended For the year ended Particulars 31 March 2019 31 March 2018 Profi t before income taxes 22,920 13,504 Enacted tax rate in India 34.94% 34.61% Computed expected tax expense 8,008 4,674 Eff ect of: Diff erences between Indian and foreign tax rates (784) (772) (Unrecognised deferred tax assets)/recognition of previously unrecognised deferred tax assets, net 458 1,649 Expenses not deductible for tax purposes 315 255 Reversal of earlier years’ tax provisions (282) (160) Income exempt from income taxes (1,128) (625) Foreign exchange diff erences (463) (46) Incremental deduction allowed for research and development costs(1) (1,134) (1,324) Write off of accounts receivables (1,294) - Eff ect of change in tax rate 3 1,269 Others 159 (540) Income tax expense 3,858 4,380 Eff ective tax rate 16.83% 32.43% (1) India’s Finance Act, 2016 incorporated an amendment that reduces the weighted deduction on eligible research and development expenditure in a phased manner from 200% to 150% commencing from 1 April 2017, and from 150% to 100% eff ective 1 April 2020. The decrease in the Company’s eff ective tax rate for the year ended 31 March 2019 as compared to the year ended 31 March 2018 was primarily on account of the re-measurement of deferred tax assets and liabilities of the Company’s subsidiaries in the United States due to the enactment of The Tax Cuts and Jobs Act of 2017 in the United States on 22 December 2017. Due to this enactment, the Company re-measured its U.S. deferred tax assets and liabilities based on the new tax law. This resulted in a charge of ` 1,269 for the year ended 31 March 2018, primarily to refl ect the impact on the Company’s U.S. deferred tax assets of the reduction in the corporate federal income tax rate from 35% to 21% under the new tax law, and the tax deduction in the year ended 31 March 2019, of an item which was previously disallowed for tax purposes. d) Unrecognised deferred tax assets and liabilities The details of unrecognised deferred tax assets and liabilities are summarised below: Particulars As at As at 31 March 2019 31 March 2018 Deductible temporary diff erences, net 5,479 4,977 Operating tax loss carry-forward 3,567 4,030 9,046 9,007 During the year ended 31 March 2019, the Company, based on probable future taxable profi t, has recognised previously unrecognised deferred tax assets pertaining to carry forward tax losses in Dr. Reddy’s Farmaceutica Do Brasil Ltda. During the year ended 31 March 2019, the Company did not recognise deferred tax assets of ` 502 on certain deductible temporary diff erences, as the Company believes that it is not probable that there will be available taxable profi ts against which such temporary diff erences can be utilised. Deferred income taxes are not provided on undistributed earnings of ` 34,023 as at 31 March 2019, of subsidiaries outside India, where it is expected that earnings of the subsidiaries will not be distributed in the foreseeable future. Generally, the Company indefi nitely reinvests all of the accumulated undistributed earnings of foreign subsidiaries, and accordingly, has not recorded any deferred taxes in relation to such undistributed earnings of its foreign subsidiaries. It is impracticable to determine the taxes payable when these earnings are remitted.

Building a winning future 241 Dr. Reddy’s Laboratories Limited

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(All amounts in Indian Rupees millions, except share data and where otherwise stated)

2.29 Income taxes (continued) e) Deferred tax assets and liabilities The tax effects of signifi cant temporary diff erences that resulted in deferred tax assets and liabilities and a description of the items that created these diff erences is given below: As at As at Particulars 31 March 2019 31 March 2018 Deferred tax assets/(liabilities): Inventory 3,302 1,805 Minimum Alternate Tax* 1,630 1,630 Trade receivables 801 737 Operating tax loss and interest loss carry-forward 298 112 Current liabilities and provisions 701 656 Property, plant and equipment (2,950) (2,224) Investments 197 693 Others (135) 46 Net deferred tax assets 3,844 3,455 * As per Indian tax laws, companies are liable for a Minimum Alternate Tax (“MAT” tax) when current tax, as computed under the provisions of the Income Tax Act, 1961 (“Tax Act”), is determined to be below the MAT tax computed under section 115JB of the Tax Act. The excess of MAT tax over current tax is eligible to be carried forward and set-off in the future against the current tax liabilities over a period of 15 years. In assessing whether the deferred income tax assets will be realised, management considers whether some portion or all of the deferred income tax assets will not be realised. The ultimate realisation of the deferred income tax assets and tax loss carry forwards is dependent upon the generation of future taxable income during the periods in which the temporary diff erences become deductible. Management considers the scheduled reversals of deferred tax liabilities, projected future taxable income and tax planning strategy in making this assessment. Based on the level of historical taxable income and projections of future taxable income over the periods in which the deferred tax assets are deductible, management believes that the Company will realise the benefi ts of those recognised deductible diff erences and tax loss carry forwards. Recoverability of deferred tax assets is based on estimates of future taxable income. Any changes in such future taxable income would impact the recoverability of deferred tax assets. Operating loss carry forward consists of business losses, unabsorbed depreciation and unabsorbed interest carry-forwards. A portion of this total loss can be carried indefi nitely and the remaining amounts expire at various dates ranging from 2020 through 2029. f) Movement in deferred tax assets and liabilities during the years ended 31 March 2019 and 31 March 2018 The details of movement in deferred tax assets and liabilities are summarised below: Recognised in the As at Recognised in As at Particulars consolidated statement of 1 April 2018 equity 31 March 2019 profi t and loss Deferred tax assets/(liabilities) Inventory 1,805 1,497 - 3,302 Minimum Alternate Tax 1,630 - - 1,630 Trade receivables 737 64 - 801 Operating tax loss and interest loss carry-forward 112 186 - 298 Current liabilities and provisions 656 110 (65) 701 Property, plant and equipment (2,224) (726) - (2,950) Investments 693 (85) (411) 197 Others 46 (181) (135) Net deferred tax assets/(liabilities) 3,455 865 (476) 3,844

Recognised in the As at Recognised in As at Particulars consolidated statement of 1 April 2017 equity 31 March 2018 proﬁ t and loss Deferred tax assets/(liabilities) Inventory 2,389 (584) - 1,805 Minimum Alternate Tax 1,637 (7) - 1,630 Trade receivables 1,386 (649) - 737 Operating tax loss and interest loss carry-forward 1,329 (1,217) - 112 Current liabilities and provisions 805 (158) 9 656 Property, plant and equipment (1,673) (551) - (2,224) Investments (704) 504 893 693 Others (5) 51 - 46 Net deferred tax assets/(liabilities) 5,164 (2,611) 902 3,455 The amounts recognised in the consolidated statement of proﬁ t and loss during the years ended 31 March 2019 and 31 March 2018 include ` 16 and ` 16 respectively, which represent exchange diff erences arising due to foreign currency translations.

242 Company Overview Statutory Reports Financial Statements Annual Report 2018-19

Consolidated NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(All amounts in Indian Rupees millions, except share data and where otherwise stated)

2.30 Operating leases The Company has leased offi ces and vehicles under various operating lease agreements that are renewable on a periodic basis at the option of both the lessor and the lessee. Rental expense under these leases was ` 905 and ` 787 for the years ended 31 March 2019 and 31 March 2018, respectively.

The schedule of future minimum rental payments in respect of non-cancellable operating leases is set out below:

Particulars As at As at 31 March 2019 31 March 2018 Less than one year 405 496 Between one and ﬁ ve years 797 1,144 More than ﬁ ve years 89 289 1,291 1,929

2.31 Financial instruments Instruments by category The carrying value and fair value of ﬁ nancial instruments as at 31 March 2019 and 31 March 2018 were as follows: As at 31 March 2019 As at 31 March 2018 Particulars Total carrying Total fair value/ Total carrying Total fair value/ value amortised cost value amortised cost Financial assets Cash and cash equivalents 2,228 2,228 2,638 2,638 Investments(1) 23,342 23,342 20,879 20,879 Trade receivables 39,982 39,982 40,696 40,696 Derivative instruments 360 360 105 105 Other ﬁ nancial assets 2,843 2,843 2,289 2,289 Total 68,755 68,755 66,607 66,607

Financial liabilities Trade payables 13,671 13,671 13,345 13,345 Long-term borrowings 22,000 22,000 25,089 25,089 Short-term borrowings 12,125 12,125 25,562 25,562 Derivative instruments 68 68 85 85 Other fi nancial liabilities 22,772 22,772 19,641 19,641 Total 70,636 70,636 83,722 83,722 (1) Interest accrued but not due on investments is included in other fi nancial assets. Fair value hierarchy Level 1 - Quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2 - Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e., as prices) or indirectly (i.e., derived from prices). Level 3 - Inputs for the assets or liabilities that are not based on observable market data (unobservable inputs). The following table presents the fair value hierarchy of assets and liabilities measured at fair value on a recurring basis as of 31 March 2019: Particulars Level 1 Level 2 Level 3 Total FVTPL - Financial asset - Investments in units of mutual funds 16,240 - - 16,240 FVTOCI - Financial asset - Investment in equity securities 791 - - 791 Derivative fi nancial instruments – net gain/(loss) on outstanding foreign exchange forward, option and swap contracts and - 292 - 292 interest rate swap contracts(1)

Building a winning future 243 Dr. Reddy’s Laboratories Limited

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(All amounts in Indian Rupees millions, except share data and where otherwise stated)

2.31 Financial instruments (continued) (1) The Company enters into derivative fi nancial instruments with various counterparties, principally fi nancial institutions and banks. Derivatives valued using valuation techniques with market observable inputs are mainly interest rate swaps, foreign exchange forward option and swap contracts. The most frequently applied valuation techniques include forward pricing, swap models and Black-Scholes-Merton models (for option valuation), using present value calculations. The models incorporate various inputs including foreign exchange forward rates, interest rate curves and forward rate curves. As at 31 March 2019 and 31 March 2018, the changes in counterparty credit risk had no material eff ect on the hedge eff ectiveness assessment for derivatives designated in hedge relationships and other fi nancial instruments recognised at fair value. Derivative fi nancial instruments The Company had a derivative fi nancial asset and derivative fi nancial liability of ` 360 and ` 68, respectively, as of 31 March 2019 as compared to derivative fi nancial asset and derivative fi nancial liability of ` 105 and ` 85, respectively, as of 31 March 2018 towards these derivative fi nancial instruments. Details of gain/(loss) recognised in respect of derivative contracts The following table presents details in respect of the gain/(loss) recognised in respect of derivative contracts during the applicable year ended : Particulars For the year ended For the year ended 31 March 2019 31 March 2018 Net gain/(loss) recognised as part of foreign exchange gain and losses in respect of foreign (257) 161 exchange derivative contracts Net gain/(loss) recognised in equity in respect of hedges of highly probable forecast transactions 180 (79) Net gain/(loss) recognised as component of revenue (524) 651 The net carrying amount of the Company’s “hedging reserve” as a component of equity before adjusting for tax impact was a gain of ` 229 as at 31 March 2019, as compared to a gain of ` 49 as at 31 March 2018. Outstanding foreign exchange derivative contracts The following table gives details in respect of the notional amount of outstanding foreign exchange derivative contracts as of 31 March 2019: Category Instrument Currency Cross Currency(1) Amount in millions Buy/Sell Forward contract US$ INR US$ 261 Sell Forward contract RUB INR RUB 2,710 Sell Hedges of recognised assets and Forward contract GBP INR GBP 18 Sell liabilities Forward contract US$ RUB US$ 30 Buy Forward contract GBP US$ GBP 23 Buy Hedges of highly probable forecast Forward contract RUB INR RUB 1,350 Sell transactions Option contract US$ INR US$ 300 Sell The following table gives details in respect of the notional amount of outstanding foreign exchange derivative contracts as of 31 March 2018: Category Instrument Currency Cross Currency(1) Amount in millions Buy/Sell Forward contract US$ INR US$ 72 Sell Hedges of recognised assets and Forward contract GBP US$ GBP 31 Buy liabilities Forward contract US$ RUB US$ 38 Buy Option contract US$ INR US$ 65 Sell Hedges of highly probable forecast Forward contract RUB INR RUB 1,080 Sell transactions Option contract US$ INR US$ 240 Sell (1) “INR” means Indian Rupees, “US$” means United States dollars, “RON” means Romanian new leus, “GBP” means U.K. pounds sterling and “RUB” means Russian roubles. The table below summarises the periods when the cash fl ows associated with highly probable forecast transactions that are classifi ed as cash fl ow hedges are expected to occur: As at As at Particulars 31 March 2019 31 March 2018 Cash fl ows in United States dollars Not later than one month 2,420 1,955 Later than one month and not later than three months 4,841 3,911 Later than three months and not later than six months 7,261 5,866 Later than six months and not later than one year 6,225 3,910 20,747 15,642 Cash fl ows in Russian roubles Not later than one month 161 102 Later than one month and not later than three months 320 204 Later than three months and not later than six months 480 306 Later than six month and not later than one year 480 611 1,441 1,223

244 Company Overview Statutory Reports Financial Statements Annual Report 2018-19

Consolidated NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(All amounts in Indian Rupees millions, except share data and where otherwise stated)

2.31 Financial instruments (continued) Hedges of changes in the interest rates Consistent with its risk management policy, the Company uses interest rate swaps (including cross currency interest rate swaps) to mitigate the risk of changes in interest rates. The Company does not use them for trading or speculative purposes. A net loss of ` 28, representing the changes in the fair value of interest rate swaps used as hedging instrument in a cash fl ow hedge is recognised in the statement of other comprehensive income. For balance interest rate swaps, the changes in fair value (including cross currency interest rate swaps) are recognised as part of the fi nance costs. Accordingly the Company has recorded, as part of fi nance cost, a net loss of ` 0 and a net gain of ` 9 for the year ended 31 March 2019 and 31 March 2018 respectively. The Company had outstanding interest swap arrangements that hedged a portion of interest rate risk arising from fl oating rate, dollar denominated foreign currency borrowing of US$ 50 million and US$ 50 million as at 31 March 2019 and 31 March 2018, respectively. 2.32 Financial risk management The Company’s activities expose it to a variety of fi nancial risks, including market risk, credit risk and liquidity risk. The Company’s primary risk management focus is to minimise potential adverse eff ects of market risk on its fi nancial performance. The Company’s risk management assessment and policies and processes are established to identify and analyse the risks faced by the Company, to set appropriate risk limits and controls, and to monitor such risks and compliance with the same. Risk assessment and management policies and processes are reviewed regularly to refl ect changes in market conditions and the Company’s activities. The Board of Directors and the Audit Committee is responsible for overseeing the Company’s risk assessment and management policies and processes. a) Market risk Market risk is the risk of loss of future earnings, fair values or future cash fl ows that may result from adverse changes in market rates and prices (such as interest rates, foreign currency exchange rates and commodity prices) or in the price of market risk-sensitive instruments as a result of such adverse changes in market rates and prices. Market risk is attributable to all market risk-sensitive fi nancial instruments, all foreign currency receivables and payables and all short-term and long-term debt. The Company is exposed to market risk primarily related to foreign exchange rate risk, interest rate risk and the market value of its investments. Thus, the Company’s exposure to market risk is a function of investing and borrowing activities and revenue generating and operating activities in foreign currencies. Foreign exchange risk The Company’s foreign exchange risk arises from its foreign operations, foreign currency revenues and expenses, (primarily in United States dollars, Russian roubles, U.K pounds sterling and Euros) and foreign currency borrowings (in United States dollars, Russian roubles , Ukrainian hryvnias, South African rands, Mexican pesos and Euros). A signifi cant portion of the Company’s revenues are in these foreign currencies, while a signifi cant portion of its costs are in Indian rupees. As a result, if the value of the Indian rupee appreciates relative to these foreign currencies, the Company’s revenues measured in Indian rupees may decrease. The exchange rate between the Indian rupee and these foreign currencies has changed substantially in recent periods and may continue to fl uctuate substantially in the future. Consequently, the Company uses both derivative and non-derivative fi nancial instruments, such as foreign exchange forward contracts, option contracts, currency swap contracts and foreign currency fi nancial liabilities, to mitigate the risk of changes in foreign currency exchange rates in respect of its highly probable forecast transactions and recognised assets and liabilities. The details in respect of the outstanding foreign exchange forward and option contracts are given in note 2.31 to these consolidated fi nancial statements. In respect of the Company’s forward and option contracts, a 10% decrease/increase in the respective exchange rates of each of the currencies underlying such contracts would have resulted in:

a ` 1,872/(1,349) increase/(decrease) in the Company’s hedging reserve and a ` 1,789/(1,873) increase/(decrease) in the Company’s proﬁ t from such contracts, as at 31 March 2019;

a ` 1,277/(1,338) increase/(decrease) in the Company’s hedging reserve and a ` 403/(308) increase/(decrease) in the Company’s profi t from such contracts, as at 31 March 2018. The following table analyses foreign currency risk from non-derivative fi nancial instruments as at 31 March 2019: (All fi gures in equivalent Indian Rupees millions) Particulars United States dollars Euros Russian roubles Others(1) Total Assets Cash and cash equivalents 339 30 58 418 845 Investments 20 - - - 20 Trade receivables 20,524 437 7,290 2,969 31,220 Other fi nancial assets 298 18 68 138 522 Total 21,181 485 7,416 3,525 32,607

Building a winning future 245 Dr. Reddy’s Laboratories Limited

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(All amounts in Indian Rupees millions, except share data and where otherwise stated)

2.32 Financial risk management (continued) (All ﬁ gures in equivalent Indian Rupees millions) Particulars United States dollars Euros Russian roubles Others(1) Total Liabilities Trade payables 2,260 987 - 299 3,546 Long-term borrowings 3,453 - 3 - 3,456 Short-term borrowings 7,538 - 1,387 307 9,232 Other ﬁ nancial liabilities 5,207 105 1,509 985 7,806 Total 18,458 1,092 2,899 1,591 24,040

The following table analyses foreign currency risk from non-derivative fi nancial instruments as at 31 March 2018: (All fi gures in equivalent Indian Rupees millions) Particulars United States dollars Euros Russian roubles Others(1) Total Assets Cash and cash equivalents 392 62 56 512 1,022 Investments - - - 20 20 Trade receivables 25,427 437 6,681 2,592 35,137 Other assets 125 85 260 196 666 Total 25,944 584 6,997 3,320 36,845 Liabilities Trade payables 3,036 1,566 2 328 4,932 Long-term borrowings 4,888 - - - 4,888 Short-term borrowings 19,552 - 2,378 178 22,108 Other fi nancial liabilities 3,831 227 1,905 705 6,668 Total 31,307 1,793 4,285 1,211 38,596 (1) Others primarily consists of U.K. pounds sterling, Swiss francs, Romanian new leus and Ukrainian hryvnia. For the years ended 31 March 2019 and 31 March 2018, every 10% depreciation/appreciation in the exchange rate between the Indian rupee and the respective currencies for the above mentioned fi nancial assets/liabilities would aff ect the Company’s net profi t by ` 857 and ` 175, respectively. Interest rate risk As of 31 March 2019, the Company had ` 31,154 of loans carrying a fl oating interest rate ranging from 1 Month LIBOR plus 25 bps to 1 Month LIBOR plus 105 bps; ` 72 of loans carrying a fl oating interest rate of 1 Month JIBAR plus 120 bps; and ` 1,749 of loans carrying a fl oating interest rate of TIIE+1.25%. As of 31 March 2018, the Company had ` 42,592 of loans carrying a fl oating interest rate ranging from 1 Month LIBOR minus 30 bps to 1 Month/3 Months LIBOR plus 85 bps. These loans expose the Company to risk of changes in interest rates. The Company’s treasury department monitors the interest rate movement and manages the interest rate risk based on its policies, which include entering into interest rate swaps as considered necessary. For details of the Company’s short-term and long-term loans and borrowings, including interest rate profi les, refer to note 2.10 A and B of these consolidated fi nancial statements. For the years ended 31 March 2019 and 31 March 2018, every 10% increase or decrease in the fl oating interest rate component (i.e., LIBOR, JIBAR and TIIE) applicable to its loans and borrowings would aff ect the Company’s net profi t by ` 93 and ` 77, respectively. The carrying value of the Company’s borrowings, interest component of which designated in a cash fl ow hedge, was ` 3,458 as of 31 March 2019. In respect of these borrowings, a 10% decrease/increase in the interest rates of such borrowings would have resulted in a ` 14/(12) increase/decrease in the Company’s hedging reserve as at 31 March 2019. The Company’s investments in term deposits (i.e., certifi cates of deposit) with banks and short-term liquid mutual funds are for short durations, and therefore do not expose the Company to signifi cant interest rates risk. Commodity rate risk Exposure to market risk with respect to commodity prices primarily arises from the Company’s purchases and sales of active pharmaceutical ingredients, including the raw material components for such active pharmaceutical ingredients. These are commodity products, whose prices may fl uctuate signifi cantly over short periods of time. The prices of the Company’s raw materials generally fl uctuate in line with commodity cycles, although the prices of raw materials used in the Company’s active pharmaceutical ingredients business are generally more volatile. Cost of raw materials forms the largest portion of the Company’s operating expenses. Commodity price risk exposure is evaluated and managed through operating procedures and sourcing policies. As of 31 March 2019, the Company had not entered into any material derivative contracts to hedge exposure to fl uctuations in commodity prices.

246 Company Overview Statutory Reports Financial Statements Annual Report 2018-19

Consolidated NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(All amounts in Indian Rupees millions, except share data and where otherwise stated)

2.32 Financial risk management (continued) b) Credit risk Credit risk is the risk of fi nancial loss to the Company if a customer or counterparty to a fi nancial instrument fails to meet its contractual obligations, and arises principally from the Company’s receivables from customers and investment securities. Credit risk is managed through credit approvals, establishing credit limits and continuously monitoring the creditworthiness of customers to which the Company grants credit terms in the normal course of business. The Company establishes an allowance for credit losses and impairment that represents its estimate of expected losses in respect of trade and other receivables and investments. Trade and other receivables The Company’s exposure to credit risk is infl uenced mainly by the individual characteristics of each customer. The demographics of the customer, including the default risk of the industry and country in which the customer operates, also has an infl uence on credit risk assessment. Credit risk is managed through credit approvals, establishing credit limits and continuously monitoring the creditworthiness of customers to which the Company grants credit terms in the normal course of business. Investments The Company limits its exposure to credit risk by generally investing in liquid securities and only with counterparties that have a good credit rating. The Company does not expect any losses from non-performance by these counter-parties, and does not have any signifi cant concentration of exposures to specifi c industry sectors or specifi c country risks. Details of fi nancial assets – not due, past due and impaired None of the Company’s cash equivalents, including term deposits (i.e., certifi cates of deposit) with banks, were past due or impaired as at 31 March 2019. The Company’s credit period for trade receivables payable by its customers generally ranges from 20 - 180 days. The ageing of trade receivables is given below: As at As at Period (in days) 31 March 2019 31 March 2018 Neither past due nor impaired 33,874 35,747 Past due but not impaired Less than 365 days 6,262 4,949 More than 365 days 1,018 1,041 Total 41,154 41,737 Less : Allowance for credit losses (1,172) (1,041) Net trade receivables 39,982 40,696 See Note 2.6 B of these consolidated fi nancial statements for the activity in the allowance for credit losses. Other than trade receivables, the Company has no signifi cant class of fi nancial assets that is past due but not impaired. c) Liquidity risk Liquidity risk is the risk that the Company will not be able to meet its fi nancial obligations as they become due. The Company manages its liquidity risk by ensuring, as far as possible, that it will always have suffi cient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risk to the Company’s reputation. As of 31 March 2019 and 31 March 2018, the Company had uncommitted lines of credit from banks of ` 47,134 and ` 24,046 respectively. As of 31 March 2019, the Company had working capital of ` 52,128, including cash and cash equivalents of ` 2,228, investments in term deposits with banks (i.e., deposits having original maturities of more than 3 months) , bonds and commercial paper of ` 6,289 and investments measured at fair value through profi t and loss (“FVTPL”) of ` 16,240. As of 31 March 2018, the Company had working capital of ` 36,046, including cash and cash equivalents of ` 2,638, investments in term deposits with banks (i.e., deposits having original maturities of more than 3 months) , bonds and commercial paper of ` 3,552 and measured at fair value through profi t and loss (“FVTPL”) of ` 14,778. The table below provides details regarding the contractual maturities of signifi cant fi nancial liabilities (other than long-term borrowings and obligations under fi nance leases, which have been disclosed in note 2.10 A to these consolidated fi nancial statements) as at 31 March 2019: Particulars 2020 2021 2022 2023 Thereafter Total Trade payables 13,671----13,671 Short-term borrowings 12,125----12,125 Derivative instruments 68----68 Other fi nancial liabilities 22,670 17 17 17 51 22,772

Building a winning future 247 Dr. Reddy’s Laboratories Limited

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(All amounts in Indian Rupees millions, except share data and where otherwise stated)

2.32 Financial risk management (continued) The table below provides details regarding the contractual maturities of signifi cant fi nancial liabilities (other than long-term borrowings and obligations under fi nance leases, which have been disclosed in note 2.10 A to these consolidated fi nancial statements) as at 31 March 2018: Particulars 2019 2020 2021 2022 Thereafter Total Trade payables 13,345----13,345 Short-term borrowings 25,562----25,562 Derivative instruments 85----85 Other fi nancial liabilities 19,497 51 16 16 61 19,641 2.33 Contingent liabilities and commitments A. Contingent liabilities (claims against the company not acknowledged as debts) The Company is involved in disputes, lawsuits, claims, governmental and/or regulatory inspections, inquiries, investigations and proceedings, including patent and commercial matters that arise from time to time in the ordinary course of business. The more signifi cant matters are discussed below. Most of the claims involve complex issues. Often, these issues are subject to uncertainties and therefore the probability of a loss, if any, being sustained and an estimate of the amount of any loss is diffi cult to ascertain. Consequently, for a majority of these claims, it is not possible to make a reasonable estimate of the expected fi nancial eff ect, if any, that will result from ultimate resolution of the proceedings. This is due to a number of factors, including: the stage of the proceedings (in many cases trial dates have not been set) and the overall length and extent of pre-trial discovery; the entitlement of the parties to an action to appeal a decision; clarity as to theories of liability; damages and governing law; uncertainties in timing of litigation; and the possible need for further legal proceedings to establish the appropriate amount of damages, if any. In these cases, the Company discloses information with respect to the nature and facts of the case. The Company also believes that disclosure of the amount sought by plaintiff s, if that is known, would not be meaningful with respect to those legal proceedings. Although there can be no assurance regarding the outcome of any of the legal proceedings or investigations referred to in this Note, the Company does not expect them to have a materially adverse eff ect on its nancialfi position, as it believes that the likelihood of loss in excess of amounts accrued (if any) is not probable. However, if one or more of such proceedings were to result in judgements against the Company, such judgements could be material to its results of operations in a given period. (i) Product and patent related matters Launch of product On 14 June 2018, the U.S. FDA granted the Company fi nal approval for Buprenorphine and Naloxone Sublingual Film, 2 mg/0.5 mg, 4 mg/1 mg, 8 mg/2 mg, and 12 mg/3 mg dosages, a therapeutic equivalent generic version of Suboxone® sublingual fi lm. The U.S. FDA approval came after the conclusion of litigation in the U.S. District Court for the District of Delaware, (the “Delaware District Court”), where the Delaware District Court held that patents covering Suboxone® sublingual fi lm would not be infringed by the Company’s commercial launch of its generic sublingual fi lm product. In light of the favourable decision from the Delaware District Court, the Company launched its generic sublingual fi lm product in the U.S. immediately following the U.S. FDA approval on 14 June 2018. Indivior has appealed the Delaware District Court’s decision to the U.S. Court of Appeals for the Federal Circuit (“Court of Appeals”). Oral argument on Indivior’s appeal occurred on 2 April 2018. The parties are awaiting a ruling from the Court of Appeals. After the Delaware Court’s decision, Indivior fi led a second lawsuit against the Company alleging infringement of three additional patents in the U.S. District Court for the District of New Jersey, styled Indivior Inc. et al. v. Dr. Reddy’s Laboratories S.A., Civil Action No. 2:17-cv-07111 (D.N.J.) (the “New Jersey District Court”). Following the launch, on 15 June 2018, Indivior PLC (“Indivior”) fi led an emergency application for a temporary restraining order and preliminary injunction against the Company in the New Jersey District Court. Indivior’s motion alleged that the Company’s generic sublingual fi lm product infringed one of three patents at issue in the New Jersey District Court. Pending a hearing and decision on the injunction application, the New Jersey District Court initially issued a temporary restraining order against the Company with respect to further sales, off er for sales, and imports of its generic sublingual film product in the United States. Subsequently, on 14 July 2018, the New Jersey District Court granted a preliminary injunction in favour of Indivior. Under the Order, Indivior required to and did post a bond of US$ 72 million to pay the costs and damages sustained by the Company if it was found to be wrongfully enjoined. The Company immediately appealed the decision and Court of Appeals agreed to expedite the appeal. The Court of Appeals heard oral argument on the Company’s appeal on 4 October 2018. On 20 November 2018, the Court of Appeals issued a decision vacating the preliminary injunction. On 20 December 2018, Indivior fi led a petition seeking rehearing of the appeal and the Court of Appeals asked the Company to respond to Indivior’s petition on 16 January 2019. The Company fi led its response to Indivior’s petition, for rehearing on 17 January 2019. On 4 February 2019, the Federal Circuit Court denied Indivior’s petition for rehearing. Indivior subsequently fi led two emergency motions in the Federal Circuit Court to stay issuance of the mandate to vacate the preliminary injunction, which the Federal Circuit Court denied. Indivior then petitioned the U.S. Supreme Court to stay issuance of the mandate. Indivior’s petition was denied by the Chief Justice of the U.S. Supreme Court on 19 February 2019 and the mandate was issued on the same day. The Company resumed its launch of its generic Suboxone product after the mandate was issued. Litigation has resumed in the New Jersey District Court. No trial date has been set by the New Jersey District Court. The Company intends to vigorously defend its positions and pursue a claim for damages caused by the preliminary injunction. Any liability that may arise on account of this litigation is unascertainable. Accordingly, no provision was made in the consolidated fi nancial statements of the Company.

248 Company Overview Statutory Reports Financial Statements Annual Report 2018-19

Consolidated NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(All amounts in Indian Rupees millions, except share data and where otherwise stated)

2.33 Contingent liabilities and commitments (continued) Matters relating to National Pharmaceutical Pricing Authority Norfl oxacin, India litigation The Company manufactures and distributes Norfl oxacin, a formulations product, and in limited quantities, the active pharmaceutical ingredient norfl oxacin. Under the Drugs (Prices Control) Order (the “DPCO”), the National Pharmaceutical Pricing Authority (the “NPPA”) established by the Government of India had the authority to designate a pharmaceutical product as a “specifi ed product” and fi x the maximum selling price for such product. In 1995, the NPPA issued a notifi cation and designated Norfl oxacin as a “specifi ed product” and fi xed the maximum selling price. In 1996, the Company fi led a statutory Form III before the NPPA for the upward revision of the maximum selling price and a writ petition in the Andhra Pradesh High Court (the “High Court”) challenging the validity of the designation on the grounds that the applicable rules of the DPCO were not complied with while fi xing the maximum selling price. The High Court had previously granted an interim order in favour of the Company; however it subsequently dismissed the case in April 2004. The Company fi led a review petition in the High Court in April 2004 which was also dismissed by the High Court in October 2004. Subsequently, the Company appealed to the Supreme Court of India, New Delhi (the “Supreme Court”) by fi ling a Special Leave Petition. During the year ended 31 March 2006, the Company received a notice from the NPPA demanding the recovery of the price charged by the Company for sales of Norfl oxacin in excess of the maximum selling price fi xed by the NPPA, which was ` 285 including interest. The Company fi led a writ petition in the High Court challenging this demand order. The High Court admitted the writ petition and granted an interim order, directing the Company to deposit 50% of the principal amount claimed by the NPPA, which was ` 77. The Company deposited this amount with the NPPA in November 2005. In February 2008, the High Court directed the Company to deposit an additional amount of ` 30, which was deposited by the Company in March 2008. In November 2010, the High Court allowed the Company’s application to include additional legal grounds that the Company believed strengthened its defense against the demand. For example, the Company added as grounds that trade margins should not be included in the computation of amounts overcharged, and that it was necessary for the NPPA to set the active pharmaceutical ingredient price before the process of determining the ceiling on the formulation price. In October 2013, the Company fi led an additional writ petition before the Supreme Court challenging the inclusion of Norfl oxacin as a “specifi ed product” under the DPCO. In January 2015, the NPPA fi led a counter affi davit stating that the inclusion of Norfl oxacin was based upon the recommendation of a committee consisting of experts in the fi eld. On 20 July 2016, the Supreme Court remanded the matters concerning the inclusion of Norfl oxacin as a “specifi ed product” under the DPCO back to the High Court for further proceedings. During the three months ended 30 September 2016, the Supreme Court dismissed the Special Leave Petition pertaining to the fi xing of prices for Norfl oxacin formulations. During the three months ended 31 December 2016, a writ petition pertaining to Norfl oxacin was fi led by the Company with the Delhi High Court. The matter is adjourned to 11 September 2019 for hearing. Based on its best estimate, the Company has recorded a provision for potential liability for sale proceeds in excess of the notifi ed selling prices, including the interest thereon, and believes that the likelihood of any further liability that may arise on account of penalties pursuant to this litigation is not probable. Litigation relating to Cardiovascular and Anti-diabetic formulations In July 2014, the NPPA, pursuant to the guidelines issued in May 2014 and the powers granted by the Government of India under the Drugs (Price Control) Order, 2013, issued certain notifi cations regulating the prices for 108 formulations in the cardiovascular and anti-diabetic therapeutic areas. The Indian Pharmaceutical Alliance (“IPA”), in which the Company is a member, fi led a writ petition in the Bombay High Court challenging the notifi cations issued by the NPPA on the grounds that they were ultra vires, ex facie and ab initio void. The Bombay High Court issued an order to stay the writ in July 2014. On 26 September 2016, the Bombay High Court dismissed the writ petition fi led by the IPA and upheld the validity of the notifi cations/orders passed by the NPPA in July 2014. Further, on 25 October 2016, the IPA fi led a Special Leave Petition with the Supreme Court, which was dismissed by the Supreme Court. During the three months ended 31 December 2016, the NPPA issued show-cause notices relating to allegations that the Company exceeded the notifi ed maximum prices for 11 of its products. The Company has responded to these notices. On 20 March 2017, the IPA fi led an application before the Bombay High Court for the recall of the judgement of the Bombay High Court dated 26 September 2016. This recall application fi led by the IPA was dismissed by the Bombay High Court on 4 October 2017. Further, on 13 December 2017, the IPA fi led a Special Leave Petition, with the Supreme Court for the recall of the judgement of the Bombay High Court dated 4 October 2017, which was dismissed by Supreme Court on 10 January 2018. During the three months ended 31 March 2017, the NPPA issued notices to the Company demanding payments relating to the foregoing products for the allegedly overcharged amounts, along with interest. On 13 July 2017, in response to a writ petition which the Company had fi led, the Delhi High Court set aside all the demand notices of the NPPA and directed the NPPA to provide a personal hearing to the Company and pass a speaking order. A personal hearing in this regard was held on 21 July 2017. On 27 July 2017, the NPPA passed a speaking order along with the demand notice directing the Company to pay an amount of ` 776. On 3 August 2017, the Company fi led a writ petition challenging the speaking order and the demand notice.

Building a winning future 249 Dr. Reddy’s Laboratories Limited

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(All amounts in Indian Rupees millions, except share data and where otherwise stated)

2.33 Contingent liabilities and commitments (continued) Upon hearing the matter on 8 August 2017, the Delhi High Court stayed the operation of the demand order and directed the Company to deposit ` 100 and furnish a bank guarantee for ` 676. Pursuant to the order, the Company deposited ` 100 on 13 September 2017 and submitted a bank guarantee of ` 676 dated 15 September 2017 to the Registrar General, Delhi High Court. On 22 November 2017, the Delhi High Court directed the Union of India to fi le a fi nal counter affi davit within six weeks, subsequent to which the Company could fi le a rejoinder. On 10 May 2018, the counter affi davit was fi led by the Union of India. The Company subsequently fi led a rejoinder and both were taken on record by the Delhi High Court. The matter has been adjourned to 22 July 2019 for hearing. Based on its best estimate, the Company has recorded a provision of ` 342 under “selling and other expenses” as a potential liability for sale proceeds in excess of the notifi ed selling prices, including the interest thereon, and believes that the likelihood of any further liability that may arise on account of penalties pursuant to this litigation is not probable. However, if the Company is unsuccessful in such litigation, it will be required to remit the sale proceeds in excess of the notifi ed selling prices to the Government of India with interest and could potentially include penalties, which amounts are not readily ascertainable. Other product and patent related matters Child resistant packaging matter complaint under the False Claims Act (“FCA”) In May 2012, the Consumer Product Safety Commission (the “CPSC”) requested that Dr. Reddy’s Laboratories Inc., a wholly-owned subsidiary of the Company in the United States, provide certain information with respect to compliance with requirements of special packaging for child resistant blister packs for 6 products sold by the Company in the United States during the period commencing in 2002 through 2011. The Company provided the requested information. The CPSC subsequently alleged in a letter dated 30 April 2014 that the Company had violated the Consumer Product Safety Act (the “CPSA”) and the Poison Prevention Packaging Act (the “PPPA”) and that the CPSC intended to seek civil penalties. Specifi cally, the CPSC asserted, among other things, that from or about 14 August 2008 through 1 June 2012, the Company sold prescription drugs having unit dose packaging that failed to comply with the CPSC’s special child resistant packaging regulations under the PPPA and failed to issue general certifi cates of conformance. In addition, the CPSC asserted that the Company violated the CPSA by failing to immediately advise the CPSC of the alleged violations. The Company disagrees with the CPSC’s allegations. Simultaneously, the U.S. Department of Justice (the “DOJ”) began to investigate a sealed complaint which was fi led in the United States District Court for the Eastern District of Pennsylvania under the Federal False Claims Act (“FCA”) related to these same issues (the “FCA Complaint”). The Company cooperated with the DOJ in its investigation. The DOJ and all States involved in the investigation declined to intervene in the FCA Complaint. On 10 November 2015, the FCA Complaint was unsealed and the plaintiff whistleblowers, who are two former employees of the Company, proceeded without the DOJ’s and applicable States’ involvement. The unsealed FCA Complaint relates to the 6 blister pack products originally subject to the investigation and also 38 of the Company’s generic prescription products sold in the U.S. in various bottle and cap packaging. The Company fi led its response to the FCA Complaint on 23 February 2016 in the form of a motion to dismiss for failure to state a claim upon which relief can be granted. On 26 March 2017, the Court granted the Company’s motion to dismiss, dismissing the FCA Complaint and allowing the plaintiff s one more chance to refi le this complaint in an attempt to plead sustainable allegations. On 29 March 2017, the plaintiff s fi led their fi nal amended FCA Complaint, which the Company opposed and during the three months ended 31 March 2018, the Company obtained dismissal of the FCA Complaint with prejudice. The plaintiff s fi led a petition with the Court requesting that the Court reconsider its decision to dismiss the FCA Complaint with prejudice, and that request was denied. The parallel investigation by the CPSC under the CPSA and the PPPA was referred by the CPSC to the DOJ’s offi ce in Washington, D.C. in April 2016, with the recommendation that the DOJ initiate a civil penalty action against the Company. The CPSC matter referred to the DOJ relates to fi ve of the blister pack products. On 18 January 2018, the Company and the DOJ entered into a settlement of the action and agreed to a consent decree providing for a civil penalty of US$ 5 million (` 319) and injunctive relief. The settlement was without adjudication of any issue of fact or law, and the Company has not admitted any violations of law pursuant to this settlement. During the three months ended 31 March 2018, the Company obtained dismissal of the FCA Complaint with prejudice. The plaintiff s subsequently fi led a petition with the Court requesting that the Court reconsider its decision to dismiss the FCA Complaint with prejudice, and that request was denied. In June 2018, the plaintiff s fi led their Notice of Appeal to the Third Circuit Court of Appeals. During the three months ended September 2018, the plaintiff s and the DOJ settled and thus this appeal was dismissed. The plaintiff s then filed an application for recovery of attorneys’ fees from the Company under the “alternative remedy doctrine.” The Company made opposing fi lings to this and in response the plaintiff s withdrew their application. The Company believes that the likelihood of any liability that may arise on account of the FCA Complaint is not probable. Accordingly, no provision has been made in these consolidated fi nancial statements.

250 Company Overview Statutory Reports Financial Statements Annual Report 2018-19

Consolidated NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(All amounts in Indian Rupees millions, except share data and where otherwise stated)

2.33 Contingent liabilities and commitments (continued) Namenda Litigation In August 2015, Sergeants Benevolent Assoc. Health & Welfare Fund (“Sergeants”) fi led suit against the Company in the United States District Court for the Southern District of New York. Sergeants alleged that certain parties, including the Company, violated federal antitrust laws as a consequence of having settled patent litigation related to the Alzheimer’s drug Namenda® (memantine) tablets during a period from about 2009 until 2010. Sergeants seeks to represent a class of “end-payor” purchasers of Namenda® tablets (i.e., insurers, other third-party payors and consumers). Sergeants seeks damages based upon an allegation made in the complaint that the defendants entered into patent settlements regarding Namenda® tablets for the purpose of delaying generic competition and facilitating the brand innovator’s attempt to shift sales from the original immediate release product to the more recently introduced extended release product. The Company believes that the complaint lacks merit and that the Company’s conduct complied with all applicable laws and regulations. Defendants’ motions to dismiss were denied. A stay on discovery has been lifted and some discovery has been taken but there is currently no schedule in place. Four other class action complaints, each containing similar allegations to the Sergeants complaint, have also been fi led in the U.S. District Court for the Southern District of New York. However, two of those complaints were voluntarily dismissed, and the other two do not name the Company as a defendant. In addition, the State of New York fi led an antitrust case in the U.S. District Court for the Southern District of New York. The case brought by the State of New York contained some (but not all) of the allegations set forth in the class action complaints, but the Company was not named as a party. The case brought by the State of New York was dismissed by stipulation on 30 November 2015. The Company believes that the likelihood of any liability that may arise on account of alleged violation of federal antitrust laws is not probable. Accordingly, no provision has been made in these consolidated fi nancial statements. Class Action and Other Civil Litigation on Pricing/Reimbursement Matters On 30 December 2015 and on 4 February 2016, respectively, a class action complaint (the “First Pricing Complaint”) and another complaint (not a class action) (the “Second Pricing Complaint”) were fi led against the Company and eighteen other pharmaceutical defendants in State Court in the Commonwealth of Pennsylvania. In these actions, the class action plaintiff s allege that the Company and other defendants, individually or in some cases in concert with one another, have engaged in pricing and price reporting practices in violation of various Pennsylvania state laws. More specifi cally, the plaintiff s allege that: (1) the Company provided false and misleading pricing information to third party drug compendia companies for the Company’s generic drugs, and such information was relied upon by private third party payers that reimbursed for drugs sold by the Company in the United States, and (2) the Company acted in concert with certain other defendants to unfairly raise the prices of generic divalproex sodium ER (bottle of 80, 500 mg tablets ER 24H) and generic pravastatin sodium (bottle of 500, 10 mg tablets). The First Pricing Complaint was removed to the U.S. District Court for the Eastern District of Pennsylvania (the “E.D.P.A. Federal Court”) and, pending the outcome of the First Pricing Complaint, the Second Pricing Complaint was stayed. On 25 September 2017, the E.D.P.A. Federal Court dismissed all the claims of the plaintiff s in the First Pricing Complaint and denied leave to amend such complaint as futile. Subsequent to this decision, the plaintiff s right to appeal the dismissal of the First Pricing Complaint expired. Further, on 17 November 2016, certain class action complaints were fi led against the Company and a number of other pharmaceutical companies as defendants in the E.D.P.A Federal Court. Subsequently, these complaints were consolidated into one amended complaint as part of a multi-district, multi-product litigation pending with the E.D.P.A. Federal Court. These complaints allege that the Company and the other named defendants have engaged in a conspiracy to fi x prices and to allocate bids and customers in the sale of pravastatin sodium tablets and divalproex sodium extended-release tablets in the United States. In March 2017, plaintiff s agreed by stipulation to dismiss Dr. Reddy’s Laboratories Inc. and Dr. Reddy’s Laboratories Limited from the actions related to pravastatin sodium tablets without prejudice. The Company denies any wrong doing and intends to vigorously defend against these allegations. In response to the consolidated new complaint, the Company fi led a motion to dismiss in October 2017. The plaintiff s fi led opposition to the motion to dismiss in December 2017 and a reply was fi led by the Company in January 2018. In October 2018, the Court denied the motion to dismiss on the grounds that the allegations pled leave open the possibility of conspiracy. Therefore, discovery will proceed to look into this possibility. The Company believes that the asserted claims are without merit and intends to vigorously defend itself against the allegations. Also any liability that may arise on account of these claims is unascertainable. Accordingly, no provision was made in the consolidated fi nancial statements of the Company.

Building a winning future 251 Dr. Reddy’s Laboratories Limited

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(All amounts in Indian Rupees millions, except share data and where otherwise stated)

2.33 Contingent liabilities and commitments (continued) United States Antitrust Multi-District Litigation The following cases against the Company’s U.S. subsidiary, Dr. Reddy’s Laboratories, Inc., have been fi led and are pending and consolidated in In re Generic Pharmaceutical Pricing Antitrust Litigation, MDL 2724, 14-MD-2724 (Eastern District of Pennsylvania), Multi District Litigation (“MDL”) in the Eastern District Pennsylvania (“MDL-2724”): a) U.S. States Attorneys General Antitrust Complaints On 30 October 2017, the Attorneys General of forty-nine U.S. States, the Commonwealth of Puerto Rico and the District of Columbia, fi led an Amended Complaint in the United States District Court for the Eastern District of Pennsylvania, against eighteen generic pharmaceutical companies (including the Company’s U.S. subsidiary) with respect to fi fteen generic drugs, alleging that the Company’s U.S. subsidiary and the other named defendants engaged in a conspiracy to fi x prices and to allocate bids and customers in the United States in the sale of the fi fteen named drugs. The Company’s U.S. subsidiary is specifi cally named as a defendant with respect to two generic drugs (meprobamate and zoledronic acid), and is named as an alleged co-conspirator on an alleged “overarching conspiracy” with respect to the other thirteen generic drugs named. The Amended Complaint alleges violations of Section 1 of the Sherman Act, 15 U.S.C. §1, and the consumer protection and antitrust laws of each of the jurisdictions that are plaintiff s. The Amended Complaint seeks injunctive relief, statutory penalties, punitive damages, and recovery of treble damages, plus attorney’s fees and costs, against all named defendants on a joint and several basis, on behalf of the plaintiff jurisdictions and their citizens and inhabitants. The Company denies the claims asserted and intends to vigorously defend against the claims asserted. On 10 May 2019, the Attorneys General of forty-nine U.S. States, the Commonwealth of Puerto Rico and the District of Columbia, fi led a Complaint in the United States District Court for the District of Connecticut against twenty-one generic pharmaceutical companies (including the Company’s U.S. subsidiary) and fi fteen individual defendants, with respect to 116 generic drugs, alleging that the Company’s U.S. subsidiary and the other named defendants engaged in a conspiracy to fi x prices and to allocate bids and customers in the United States in the sale of the 116 named drugs. Under the MDL rules, this action will be designated a related “tag along” action and will be transferred to and become a part of the MDL-2724. The Company’s U.S. subsidiary is specifi cally named as a defendant with respect to fi ve generic drugs (Ciprofl oxacin HCL tablets, Glimepiride tablets, Oxaprozin tablets, Paricalcitol and Tizanidine), and is named as an alleged co-conspirator on an alleged “overarching conspiracy” with respect to the other thirteen generic drugs named. The Complaint alleges violations of Section 1 of the Sherman Act, 15 U.S.C. §1, and the consumer protection and antitrust laws of each of the jurisdictions that are plaintiff s. The Complaint seeks injunctive relief, statutory penalties, punitive damages, and recovery of treble damages, plus attorney’s fees and costs, against all named defendants on a joint and several basis, on behalf of the plaintiff jurisdictions and their citizens and inhabitants. The Company denies the claims asserted and intends to vigorously defend against the claims asserted. b) Divalproex Antitrust Class Action Cases Filed by Direct Payor Plaintiff s (“DPP”), End Payor Plaintiff s (“EPP”) and Indirect Reseller Plaintiff s (“IRP”) Classes Since 17 November 2016, certain class action complaints on behalf of Direct Purchaser Plaintiff s (“DPP”), Indirect Purchaser Plaintiff s (“IRP”) and End Payor Plaintiff s (“EPP”) were fi led against the Company’s U.S. subsidiary, Dr. Reddy’s Laboratories, Inc., and a number of other pharmaceutical defendants in the United States District Court for the District of Pennsylvania, alleging that the Company’s U.S. subsidiary and the other named defendants have engaged in a conspiracy to fi x prices and to allocate bids and customers in the sale of divalproex ER tablets in the United States. The actions allege violations of Section 1 of the Sherman Act, 15 U.S.C. §1, and of state consumer protection and antitrust laws and asserts claims of unjust enrichment under a total of thirty-one states and the District of Columbia. The actions seek injunctive relief and recovery of treble damages, punitive damages, plus attorney’s fees and costs, on a joint and several basis, on behalf of the plaintiff classes. The Company denies the claims and intends to vigorously defend against these class action complaints. c) Pravastatin Antitrust Class Action Cases Filed by Direct Payor Plaintiff s (“DPP”), End Payor Plaintiff s (“EPP”) and Indirect Reseller Plaintiff s (“IRP”) Classes Since 17 November 2016, certain class action complaints on behalf of Direct Purchaser Plaintiff s (“DPP”), Indirect Purchaser Plaintiff s (“IRP”) and End Payor Plaintiff s (“EPP”) were fi led against the Company and a number of other pharmaceutical defendants in the United States District Court for the District of Pennsylvania, alleging that the Company’s U.S. subsidiary and the other named defendants engaged in a conspiracy to fi x prices and to allocate bids and customers in the sale of pravastatin sodium tablets in the United States. The Company’s U.S. subsidiary has been dismissed from these actions, without prejudice, in exchange for a tolling agreement with the plaintiff s suspending the statute of limitations as to the claims asserted. The Company denies any wrongdoing and intends to vigorously defend against these claims. d) Antitrust “Overarching Conspiracy” Cases Filed by Direct Payor Plaintiff s (“DPP”), End Payor Plaintiff s (“EPP”) and Indirect Reseller Plaintiff s (“IRP”) Classes In June 2018, three class action complaints were fi led in the MDL-2724 by the Direct Purchaser Plaintiff s (“DPP”), Indirect Purchaser Plaintiff s (“IRP”) and End Payor Plaintiff s (“EPP”) classes. All three complaints allege conspiracies in restraint of trade in violation of Sections 1 of the Sherman Act, and violations of thirty-one State antitrust statutes, Consumer Protection statutes and claims of unjust enrichment seeking injunctive relief, recovery of treble damages, punitive damages, attorney’s fees and costs.

252 Company Overview Statutory Reports Financial Statements Annual Report 2018-19

Consolidated NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(All amounts in Indian Rupees millions, except share data and where otherwise stated)

2.33 Contingent liabilities and commitments (continued) They allege an “overarching conspiracy” among the named defendants involving fi fteen drugs and, with slight variations, name approximately twenty-fi ve generic pharmaceutical manufacturers including the Company’s U.S. subsidiary, Dr. Reddy’s Laboratories, Inc. The drug-specifi c allegations against the Company’s U.S. subsidiary involve two of the fi fteen drugs, meprobamate and zoledronic acid. Plaintiff s also allege that the Company’s U.S. subsidiary (as well as all other manufacturers named) were part of a larger “overarching conspiracy” as to all of the drugs named in the complaints. The Complaint alleges violations of Section 1 of the Sherman Act, 15 U.S.C. §1, and violations of thirty-one State antitrust statutes, Consumer Protection statutes and claims of unjust enrichment. The complaint seeks injunctive relief, recovery of treble damages, punitive damages, attorney’s fees and costs against all named defendants on a joint and several basis. The Company denies any wrongdoing and intends to vigorously defendagainst these claims. e) Antitrust Case Filed by The Kroger Co., Albertsons Companies, LLC, and H.E. Butt Grocery Company, L.P. On 22 January 2018, each of the Kroger Co., Albertsons Companies, LLC, and H.E. Butt Grocery Company, L.P., fi led a Complaint against the Company’s U.S. subsidiary and thirty-one other companies alleging that they had engaged in a conspiracy to fi x prices and to allocate bids and customers in the United States in the sale of the thirty named generic drugs. The Company’s U.S. subsidiary is specifi cally named as a defendant with respect to three generic drugs (divalproex ER, meprobamate and zoledronic acid), and is named as an alleged co-conspirator on an alleged “overarching conspiracy” claim with respect to the other generic drugs named. This action alleges violations of Section 1 of the Sherman Act, 15 U.S.C. §1, and seeks injunctive relief and recovery of treble damages, punitive damages, plus attorney’s fees and costs, on a joint and several basis. The Company denies the claims and intends to vigorously defend against these class action complaints. f) Antitrust Case Filed by Humana Inc. On 3 August 2018, Humana, Inc., fi led a Complaint against the Company’s U.S. subsidiary and thirty-nine other companies alleging that they had engaged in a conspiracy to fi x prices and to allocate bids and customers in the United States in the sale of twenty-nine named generic drugs. The Company’s U.S. subsidiary is specifi cally named as a defendant with respect to one generic drugs (divalproex ER), and is named as an alleged co-conspirator on an alleged “overarching conspiracy” claim with respect to the other generic drugs named. The Complaint alleges violations of Section 1 of the Sherman Act, 15 U.S.C. §1, and violations of thirty-one state antitrust statutes, consumer protection statutes and asserts claims of unjust enrichment. The complaint seeks injunctive relief, recovery of treble damages, punitive damages, attorney’s fees and costs against all named defendants on a joint and several basis. The Company denies any wrongdoing and intends to vigorously defend against these claims. g) Antitrust Case Filed by Marion Diagnostic Center, LLC, and Marion Healthcare, LLC On 25 September 2018, Marion Diagnostic Center, LLC, and Marion Healthcare, LLC, fi led a complaint in the MDL-2724, on behalf of itself and a class of all direct purchasers from distributors, against the Company’s U.S. subsidiary and twenty-two other defendants, including a major distributor of pharmaceutical products, involving a total of sixteen generic drugs, alleging an “overarching conspiracy” to fi x prices and to rig bids and allocate customers with respect to sixteen generic drugs. The Company’s U.S. subsidiary is specifi cally named with respect to two drugs: meprobamate and zoledronic acid. Plaintiff s also allege that the Company’s U.S. subsidiary (as well as all other manufacturers named) were part of a larger “overarching conspiracy” as to all of the drugs named in the complaints. The Complaint alleges violations of Section 1 of the Sherman Act, 15 U.S.C. §1, and violations of twenty-four State antitrust statutes, consumer protection statutes and asserts claims of unjust enrichment. The complaint seeks injunctive relief, recovery of treble damages, punitive damages, attorney’s fees and costs against all named defendants on a joint and several basis. The Company denies any wrongdoing and intends to vigorously defend against these claims. h) Antitrust Case Filed by United Healthcare Services, Inc. On 16 January 2019, United Healthcare Services, Inc., fi led a complaint against the Company’s U.S. subsidiary and forty-two other defendants, involving a total of thirty generic drugs, alleging an “overarching conspiracy” to fi x prices and to rig bids and allocate customers with respect to the thirty drugs. The Company’s U.S. subsidiary is specifi cally named with respect to four drugs: divalproex ER, meprobamate, pravastatin and zoledronic acid. Plaintiff s also allege that the Company’s U.S. subsidiary (as well as all other manufacturers named) were part of a larger “overarching conspiracy” as to all of the drugs named in the complaints. The Complaint alleges violations of Section 1 of the Sherman Act, 15 U.S.C. §1, and violations of the thirty State’s antitrust laws, consumer protection statutes, and asserts claims of unjust enrichment. The complaint seeks injunctive relief, recovery of treble damages, punitive damages, and attorney’s fees and cost against all defendants on a joint and several basis. The Company believes that the aforesaid asserted claims are without merit and intends to vigorously defend itself against the allegations. Also, any liability that may arise on account of these claims is unascertainable. Accordingly, no provision was made in the consolidated fi nancial statements of the Company.

Building a winning future 253 Dr. Reddy’s Laboratories Limited

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(All amounts in Indian Rupees millions, except share data and where otherwise stated)

2.33 Contingent liabilities and commitments (continued) (ii) Civil litigation with Mezzion On 13 January 2017, Mezzion Pharma Co. Ltd. and Mezzion International LLC (collectively, “Mezzion”) fi led a complaint in the New Jersey Superior Court against the Company and its wholly owned subsidiary in the United States. The complaint pertains to the production and supply of the active pharmaceutical ingredient (“API”) for udenafi l (a patented compound) and an udenafi l fi nished dosage product during a period from calendar years 2007 to 2015. Mezzion alleges that the Company failed to comply with the U.S. FDA’s current Good Manufacturing Practices (“cGMP”) at the time of manufacture of the API and fi nished dosage forms of udenafi l and, consequently, that this resulted in a delay in the fi ling of a NDA for the product by Mezzion. In this regard, the Company fi led a motion to dismiss Mezzion’s complaint on the technical grounds that the Court lacks jurisdiction over the Company. In January 2018, the Court denied the Company’s motion to dismiss the complaint on the jurisdictional matter. The Company’s interlocutory appeal of the said denial, was also denied. The Commercial Court, Hyderabad has accepted the request of the Company to withdraw the suit, in view of the Court granting the Company’s motion of Dr. Reddy’s to fi le a Counterclaim in U.S. Action. The Company denies any wrongdoing or liability in this regard, and intends to vigorously defend against the claims asserted in Mezzion’s complaint. Any liability that may arise on account of this claim is unascertainable. Accordingly, no provision was made in the consolidated fi nancial statements of the Company. (iii) Securities Class Action Litigation On 25 August 2017, a securities class action lawsuit was fi led against the Company, its Chief Executive Offi cer, and its Chief Financial Offi cer in the United States District Court for the District of New Jersey. The Company’s Co-Chairman, its Chief Operating Offi cer, and Dr. Reddy’s Laboratories, Inc., were also subsequently named as defendants in the case. The operative complaint alleges that the Company made false or misleading statements or omissions in its public fi lings, in violation of U.S. federal securities laws, and that the Company’s share price dropped and its investors were aff ected. On 9 May 2018, the Company and other defendants ledfi a motion to dismiss the complaint in the United States District Court for the District of New Jersey. On 25 June 2018, the plaintiff s fi led an opposition to the motion to dismiss and, on 25 July 2018, a further reply in support of the motion to dismiss was fi led by the Company. In August 2018, oral argument on the motion to dismiss was heard by the Court. On 21 March 2019, the District Court issued its decision granting in part and denying in part the motion to dismiss. Pursuant to that decision, the Court dismissed the plaintiff ’s claims with respect to seventeen out of the twenty two alleged misstatements and omissions. The Company believes that the asserted claims are without merit and intends to vigorously defend itself against the allegations. Any liability that may arise on account of this claim is unascertainable. Accordingly, no provision was made in the consolidated fi nancial statements of the Company. (iv) Glenmark Litigation In November 2017, the Company received a letter from Glenmark Farmaceutica Ltda and Glenmark Pharmaceuticals Limited (collectively “Glenmark”), for invocation of arbitration under a distribution agreement and a deed of assignment relating to a product between the Company and Glenmark. Glenmark alleged that the non-supply of the product by the Company severely aff ected the value of the intellectual property and goodwill and asserted claims to recover the loss along with interest and penalties from the Company. In March 2018, an arbitrator was appointed by the Supreme Court of India at Glenmark’s request. In July 2018, Glenmark fi led a claim statement against the Company and in September 2018, the Company fi led a reply against the claim along with a counter claim. Glenmark fi led a reply to the counter claim of the Company in November 2018 and the issues were fi nalised. Inspection of documents along with the fi ling of the statement of Admissions and Denials was completed in December 2018. The Company was asked to submit the list of witnesses by 5 March 2019. Affi davits in chief examination were fi led by witnesses of the Company and Glenmark. The cross examination of the witnesses of Glenmark commenced and is anticipated to continue until July 2019. The Company believes that the asserted claims are without merit and intends to vigorously defend itself against the allegations. Any liability that may arise on account of these claims is unascertainable. No provision was made in the consolidated fi nancial statements of the Company. (v) Other matters Civil Investigative Demand from the Offi ce of the Attorney General, State of Texas On or about 10 November 2014, Dr. Reddy’s Laboratories, Inc., one of the Company’s subsidiaries in the United States, received a Civil Investigative Demand (“CID”) from the Offi ce of the Attorney General, State of Texas (the “Texas AG”) requesting certain information, documents and data regarding sales and price reporting in the U.S. marketplace of certain products for the period of time between 1 January 1995 and the date of the CID. The Company responded to all of the Texas AG’s requests to date, and it understands that the investigation is continuing.

254 Company Overview Statutory Reports Financial Statements Annual Report 2018-19

Consolidated NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(All amounts in Indian Rupees millions, except share data and where otherwise stated)

2.33 Contingent liabilities and commitments (continued) Subpeona duces tecum from the Offi ce of the Attorney General, California On 3 November 2014, Dr. Reddy’s Laboratories, Inc. received a subpoena duces tecum to appear before the Offi ce of the Attorney General, California (the “California AG”) and produce records and documents relating to the pricing of certain products. A set of fi ve interrogatories related to pricing practices was served as well. On 18 July 2016, the California AG sent a letter to inform Dr. Reddy’s Laboratories, Inc. that, in light of the information which had been provided, no further information would be requested at such time in response to this subpoena. Subpoenas from the U.S. Department of Justice (“DOJ”) and the offi ce of the Attorney General for the State of Connecticut On 6 July 2016 and 7 August 2016, Dr. Reddy’s Laboratories, Inc. received subpoenas from the DOJ (Anti-trust Division) and the offi ce of the Attorney General for the State of Connecticut, respectively, seeking information relating to the marketing, pricing and sale of certain of our generic products and any communications with competitors about such products. On 15 May 2018, another subpoena was served on Dr. Reddy’s Laboratories, Inc. by the DOJ (False Claims Division) seeking similar information. The Company has been cooperating, and intends to continue to fully cooperate, with these inquiries. (vi) Environmental matters Land pollution The Indian Council for Environmental Legal Action fi led a writ in 1989 under Article 32 of the Constitution of India against the Union of India and others in the Supreme Court of India for the safety of people living in the Patancheru and Bollarum areas of Medak district of the then existing undivided state of Andhra Pradesh. The Company has been named in the list of polluting industries. In 1996, the Andhra Pradesh District Judge proposed that the polluting industries compensate farmers in the Patancheru, Bollarum and Jeedimetla areas for discharging effl uents which damaged the farmers’ agricultural land. The compensation was fi xed at ` 0.0013 per acre for dry land and ` 0.0017 per acre for wet land. Accordingly, the Company has paid a total compensation of ` 3. The Andhra Pradesh High Court disposed of the writ petition on 12 February 2013 and transferred the case to the National Green Tribunal (“NGT”), Chennai, India. The interim orders passed in the writ petitions will continue until the matter is decided by the NGT. The NGT has, through its order dated 30 October 2015, constituted a Fact Finding Committee. The NGT has also permitted the alleged polluting industries to appoint a person on their behalf in the Fact Finding Committee. However, the Company, along with the alleged polluting industries, has challenged the constitution and composition of the Fact Finding Committee. The NGT has directed that until all the applications challenging the constitution and composition of the Fact Finding Committee are disposed of, the Fact Finding Committee shall not commence its operation. The NGT, Chennai in a judgement dated 24 October 2017, disposed of the matter. The Bulk Drug Manufacturers Association of India (“BDMAI”), in which the Company is a member, subsequently fi led a review petition against the judgement on various aspects. The NGT, Delhi, in a judgement dated 16 November 2017, in another case in which the Company is not a party, stated that the moratorium imposed in the Patancheru and Bollaram areas shall continue until the Ministry of Environment, Forest and Climate Change passes an order keeping in view the needs of the environment and public health. The Company fi led an appeal challenging this judgement. The High Court of Hyderabad heard the Company’s appeal challenging this judgement in July 2018 and directed the respondents to fi le their response within a period of four weeks. During the three months ended 30 September 2018, the respondents fi led counter affi davits and the matter has now been adjourned for fi nal hearing. The appeal came up for hearing before the High Court of Hyderabad on 25 October 2018 and has been adjourned for further hearing. On 24 April 2019, based upon the judgement of the NGT, Chennai dated 24 October 2017, the Government of Telangana has issued GO.Ms. No 24 of 2019 that allows for expansion of production of all kinds of existing industrial units located within the stretch of Patancheru – Bollaram upon depositing an amount equivalent to 1% of the annual turnover of the respective unit for the concluded fi nancial year i.e., 31 March 2019. Accordingly, the Company made a provision of ` 29, representing the probable cost of expansion, during the year ended 31 March 2019. The Company believes that any additional liability that might arise in this regard is not probable. Accordingly, no provision relating to these claims has been made in the consolidated fi nancial statements. Water pollution and air pollution During the year ended 31 March 2012, the Company, along with 14 other companies, received a notice from the Andhra Pradesh Pollution Control Board (the “APP Control Board”) to show cause as to why action should not be initiated against them for violations under the Indian Water Pollution Act and the Indian Air Pollution Act. Furthermore, the APP Control Board issued orders to the Company to (i) stop production of all new products at the Company’s manufacturing facilities in Hyderabad, India without obtaining a “Consent for Establishment”, (ii) cease manufacturing products at such facilities in excess of certain quantities specifi ed by the APP Control Board and (iii) furnish a bank guarantee to assure compliance with the APP Control Board’s orders. The Company appealed the APP Control Board orders to the Andhra Pradesh Pollution Appellate Board (the “APP Appellate Board”). The APP Appellate Board, on the basis of a report of a fact-fi nding advisory committee, recommended to the Andhra Pradesh Government to allow expansion of units fully equipped with Zero-Liquid Discharge (“ZLD”) facilities and otherwise found no fault with the Company (on certain conditions).

Building a winning future 255 Dr. Reddy’s Laboratories Limited

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(All amounts in Indian Rupees millions, except share data and where otherwise stated)

2.33 Contingent liabilities and commitments (continued) The APP Appellate Board’s decision was challenged by one of the petitioners in the National Green Tribunal and the matter is currently pending before it. The challenge to the APP Appellate Board’s decision is transferred to the NGT, Delhi for a fi nal hearing, the date for which has not yet been notifi ed. No provision relating to these claims has been made in the consolidated fi nancial statements. Separately, the Andhra Pradesh Government, following recommendations of the APP Appellate Board, published a notifi cation in July 2013 that allowed expansion of production of all types of existing bulk drug and bulk drug intermediate manufacturing units subject to the installation of ZLD facilities and the outcome of cases pending in the National Green Tribunal. Importantly, the notifi cation directed pollution load of industrial units to be assessed at the point of discharge (if any) as opposed to point of generation. In September 2013, the Ministry of Environment and Forests, based on the revised Comprehensive Environment Pollution Index, issued a notifi cation that re-imposed a moratorium on expansion of industries in certain areas where some of the Company’s manufacturing facilities are located. This notifi cation overrides the Andhra Pradesh Government’s notifi cation that conditionally permitted expansion. (vii) Indirect taxes related matters Distribution of input service tax credits The Central Excise Authorities have issued various demand notices to the Company objecting to the Company’s methodology of distributing input service tax credits claimed for one of the Company’s facilities. The below table shows the details of each such demand notice, the amount demanded and the current status of the Company’s responsive actions. Period covered under the notice Amount demanded Status March 2008 to September 2009 ` 102 plus penalties of ` 102 and interest The Company has fi led an appeal before the CESTAT October 2009 to March 2011 ` 125 plus penalties of ` 100 and interest The Company has fi led an appeal before the CESTAT April 2011 to March 2012 ` 51 plus penalties of ` 5 and interest The Company has fi led an appeal before the CESTAT April 2012 to March 2013 ` 54 plus penalties of ` 5 and interest The Company has fi led an appeal before the CESTAT April 2013 to March 2014 ` 69 plus penalties of ` 6 and interest The Company has fi led an appeal before the CESTAT April 2014 to March 2015 ` 108 plus penalties of ` 11 and interest The Company has fi led an appeal before the CESTAT April 2015 to March 2016 ` 157 plus interest and penalties The Company has submitted reply hearing awaited April 2016 to June 2017 ` 307 plus interest and penalties The Company is in the process of responding to the notice The Company believes that the likelihood of any liability that may arise on account of the allegedly inappropriate distribution of input service tax credits is not probable. Accordingly, no provision relating to these claims has been made in these consolidated fi nancial statements as of 31 March 2019. Value Added Tax (“VAT”) matter The Company has received various demand notices from the Government of Telangana’s Commercial Taxes Department objecting to the Company’s methodology of calculation of VAT input credit. The below table shows the details of each of such demand notice, the amount demanded and the current status of the Company’s responsive actions. Period covered under the notice Amount demanded Status The State VAT Appellate Tribunal has remanded the matter to the April 2006 to March 2009 ` 66 plus 10% penalty assessing authority to re-compute the eligibility and penalty orders are set-aside The Company has fi led an appeal before the Sales Tax Appellate Tribunal. The matter was remanded to the original adjudicating April 2009 to March 2011 59 plus 10% penalty ` authority with a direction to re-calculate the eligibility for the year ended 31 March 2010. The Appellate Deputy Commissioner issued an order partially in April 2011 to March 2013 16 plus 10% penalty ` favour of the Company The Company has recorded a provision of ` 51 as of 31 March 2019, and believes that the likelihood of any further liability that may arise on account of the allegedly inappropriate claims to VAT credits is not probable. Others Additionally, the Company is in receipt of various demand notices from the Indian Sales and Service Tax authorities. The disputed amount is ` 297. The Company has responded to such demand notices and believes that the chances of any liability arising from such notices are less than probable. Accordingly, no provision is made in these consolidated fi nancial statements as of 31 March 2019. (viii) Fuel Surcharge Adjustments The Andhra Pradesh Electricity Regulatory Commission (the “APERC”) passed various orders approving the levy of Fuel Surcharge Adjustment (“FSA”) charges for the period from 1 April 2008 to 31 March 2013 by power distribution companies from all the consumers of electricity in the then existing undivided state of Andhra Pradesh, India where the Company’s headquarters and principal manufacturing facilities are located. Separate writ petitions fi led by the Company for various periods, challenging and questioning the validity and legality of this levy of FSA charges by the APERC, are pending before the High Court of Andhra Pradesh and the Supreme Court of India. 256 Company Overview Statutory Reports Financial Statements Annual Report 2018-19

Consolidated NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(All amounts in Indian Rupees millions, except share data and where otherwise stated)

2.33 Contingent liabilities and commitments (continued) The total amount approved by APERC for collection by the power distribution companies from the Company in respect of FSA charges for the period from 1 April 2008 to 31 March 2013 is ` 482. After taking into account all of the available information and legal provisions, the Company has recorded ` 219 as the potential liability towards FSA charges. However, the Company has paid, under protest, an amount of ` 354 as demanded by the power distribution companies as part of monthly electricity bills. The Company remains exposed to additional fi nancial liability should the orders passed by the APERC be upheld by the Courts. During the three months ended 30 June 2016, the Supreme Court of India dismissed the Special Leave Petition fi led by the Company in this regard for the period from 1 April 2012 to 31 March 2013. As a result, for the quarter ended 30 June 2016, the Company recognised an expenditure of ` 55 (by de-recognising the payments under protest) representing the FSA charges for the period from 1 April 2012 to 31 March 2013. (ix) Direct taxes related matters The Company is contesting various disallowances by the Indian Income Tax authorities. The associated tax impact is ` 2,008. The Company believes that the chances of an unfavourable outcome in each of such disallowances are less than probable and, accordingly, no provision is made in these consolidated fi nancial statements as of 31 March 2019. During the years ended 31 March 2014, 31 March 2015 and 31 March 2016, Industrias Quimicas Falcon de Mexico, S.A. de CV, a wholly-owned subsidiary of the Company in Mexico, received a notice from Mexico’s Tax Administration Service, Servicio de Administracion Tributaria (“SAT”), with respect to disallowance on account of transfer pricing adjustments pertaining to the calendar years ended 31 December 2006, 31 December 2007 and 31 December 2008. The associated tax impact is ` 739 (MXN 207 million) and profi t share impact is ` 89 (MXN 25 million). The Company fi led administrative appeals with the SAT by challenging these disallowances and, during February and March 2017, the Company received orders of the SAT confi rming these disallowances by dismissing its administrative appeals. The Company disagrees with the SAT’s disallowances and fi led an appeal with the Tribunal Federal de Justicia Administrativa (Federal Tax and Administrative Court of Mexico) in March and April 2017. The Company believes that possibility of any liability that may arise on account of this litigation is not probable. Accordingly, no provision has been made in these consolidated fi nancial statements as of 31 March 2019. (x) Others On 28 February 2019, the Supreme Court of India issued a judgement which provided further guidance for companies in determining which components of their employees’ compensation are subject to statutory withholding obligations, and matching employer contribution obligations, for Provident Fund contributions under Indian law. There are numerous interpretative issues relating to this judgement. However, the Company has made a provision on a prospective basis from the date of the Supreme Court’s judgement. The Company will evaluate the same and update its provision, if any on receiving further clarity on the subject. Additionally, the Company is involved in other disputes, lawsuits, claims, governmental and/or regulatory inspections, inquiries, investigations and proceedings, including patent and commercial matters that arise from time to time in the ordinary course of business. Except as discussed above, the Company does not believe that there are any such contingent liabilities that are expected to have any material adverse eff ect on its consolidated fi nancial statements. B. Commitments As at As at Particulars 31 March 2019 31 March 2018 Estimated amounts of contracts remaining to be executed on capital account and not provided for (net of advances) 2,495 3,788

2.34 Collaboration agreement with Curis, Inc. On 18 January 2015, Aurigene Discovery Technologies Limited (“Aurigene”), a wholly-owned subsidiary of the parent company, entered into a Collaboration, License and Option Agreement (the “Collaboration Agreement”) with Curis, Inc. (“Curis”) to discover, develop and commercialise small molecule antagonists for immuno-oncology and precision oncology targets.Under the Collaboration Agreement, Aurigene has the responsibility for conducting all discovery and preclinical activities, including Investigational New Drug (“IND”) enabling studies and providing Phase 1 clinical trial supply, and Curis is responsible for all clinical development, regulatory and commercialisation eff orts worldwide, excluding India and Russia. The Collaboration Agreement provides that the parties will collaborate exclusively in immuno-oncology for an initial period of approximately two years, with the option for Curis to extend the broad immuno-oncology exclusivity. As partial consideration for the collaboration, pursuant to a Stock Purchase Agreement dated 18 January 2015, Curis issued to Aurigene 17.1 million shares of its common stock, representing 19.9% of its outstanding common stock immediately prior to the transaction (approximately 16.6% of its outstanding common stock immediately after the transaction). Such shares were initially subject to a lock-up agreement. However, as of 31 March 2017, lock-up restrictions were released on all of the aforementioned 17.1 million shares. In connection with the issuance of such shares, Curis and Aurigene entered into a Registration Rights Agreement dated 18 January 2015 which provides for certain registration rights with respect to resale of the shares. The common stock of Curis is listed for quotation on the NASDAQ Global Market.

Building a winning future 257 Dr. Reddy’s Laboratories Limited

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(All amounts in Indian Rupees millions, except share data and where otherwise stated)

2.34 Collaboration agreement with Curis, Inc. (continued) The fair value of the shares of Curis common stock on the date of the Stock Purchase Agreement was ` 1,452 (US$ 23.5 million). Revenues under the Collaboration Agreement consist of upfront consideration (including the shares of Curis common stock) and the development and commercial milestone payments described below, which are deferred and recognised as revenue over the period for which Aurigene has continuing performance obligations. Under the Collaboration Agreement, Aurigene is entitled to development and commercial milestone payments as follows:

for the ﬁ rst two programs: up to US$ 52.5 million per program, including US$ 42.5 million for approval and commercial milestones, plus pre-speciﬁ ed approval milestone payments for additional indications, if any;

for the third and fourth programs: up to US$ 50 million per program, including US$ 42.5 million for approval and commercial milestones, plus pre-speciﬁ ed approval milestone payments for additional indications, if any; and

for any program thereafter: up to US$ 140.5 million per program, including US$ 87.5 million for approval and commercial milestones, plus pre-specifi ed approval milestone payments for additional indications, if any. In addition, Curis has agreed to pay Aurigene royalties, ranging between high single digits to 10%, on its net sales in territories where it commercialises products. Furthermore, Aurigene is entitled to receive a share of Curis’ revenues from sublicenses, which share varies based upon specifi ed factors such as the sublicensed territory, whether the sublicense revenue is royalty based or non-royalty based and, in some cases, the stage of the applicable molecule and product at the time the sublicense is granted. On 7 September 2016, the Collaboration Agreement was amended to provide for the issuance to Aurigene of approximately 10.2 million additional shares of Curis common stock in lieu of receiving up to US$ 24.5 million of milestone and other payments from Curis that could have become due under the Collaboration Agreement. These shares of Curis common stock are recorded at US$ 1.84 per share, which is equal to the market price of such shares of common stock on the date of issuance, amounting to an aggregate market value of ` 1,247 (US$ 18.8 million). These additional shares are also subject to a lock-up agreement, which is similar to the lock-up for the original Curis shares the Company received. However, this lock-up remains eff ective until 7 September 2018, with shares being released from such lock-up in 25% increments on each of 7 March 2017, 7 September 2017, 7 March 2018 and 7 September 2018, subject to acceleration of release of all the shares in connection with a change of control of Curis. As of 31 March 2019, lock-up restrictions were released on an aggregate of 10.2 million of such additional shares of Curis common stock, representing 100% of the shares which Aurigene received from Curis in 2016. The Company has evaluated the transaction under Ind AS 28, Investments in Associates and Joint Ventures, and believes that the Company does not have any signifi cant infl uence with respect to Curis. Accordingly, all of the shares of Curis common stock are classifi ed as instruments at fair value through other comprehensive income (FVTOCI). The fair value of the investments as on 31 March 2019 is ` 753. In May 2018, Curis completed a 1-for-5 reverse stock split of its common stock. After giving eff ect to such stock split, the total number of Curis equity shares held by the Company is 5.47 million. 2.35 Asset purchase agreement with Teva Pharmaceutical Industries Limited On 10 June 2016, the Company entered into a defi nitive purchase agreement with Teva Pharmaceutical Industries Limited (“Teva”) and an affi liate of Allergan plc to acquire eight ANDAs in the United States for US$ 350 million in cash at closing. The acquired products were divested by Teva as a precondition to the closing of its acquisition of Allergan’s generics business. The acquisition of these ANDAs was also contingent on the closing of the Teva/Allergan generics purchase transaction and approval by the U.S. Federal Trade Commission. The acquisition was consummated on 3 August 2016 upon the completion of all closing conditions, and the Company paid US$ 350 million as the consideration for the acquired ANDAs. Tabulated below are the details of products acquired and the respective purchase prices in US$ million along with the corresponding amount in ` as of the payment date: Purchase Price Purchase Price Particulars of the ANDA (US$ million) (Amount in `) Ethinyl estradiol/Ethonogestrel Vaginal Ring (a generic equivalent to NuvaRing®) 185 12,351 Buprenorphine HCl/Naloxone HCl Sublingual Film (a generic equivalent to Suboxone® sublingual fi lm) 70 4,673 Ramelteon Tablets (a generic equivalent to Rozerem®) 34 2,270 Others 61 4,072 Total 350 23,366 The Company recorded such acquisition of these ANDAs as “intangible assets under development”. Such acquisition forms a part of the Company’s Global Generics segment. During the year ended 31 March 2018 and 31 March 2019, the products ezitimibe and simvastatin tablets, buprenorphine and naloxone sublingual fi lm and tobramycin were available for use and are subject to amortisation. The carrying cost of the ANDAs for these three products as at 31 March 2019 was ` 6,098 and the useful life was eight years. The carrying cost of the other ANDAs as at 31 March 2019 was ` 18,391. As these other ANDAs are not available for use yet, they are not subject to amortisation.

258 Company Overview Statutory Reports Financial Statements Annual Report 2018-19

Consolidated NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(All amounts in Indian Rupees millions, except share data and where otherwise stated)

2.36 Receipt of warning letter from the U.S. FDA The Company received a warning letter dated 5 November 2015 from the U.S. FDA relating to current Good Manufacturing Practices (“cGMPs”) deviations at its active pharmaceutical ingredient (“API”) manufacturing facilities at Srikakulam, Andhra Pradesh and Miryalaguda, Telangana, as well as violations at its oncology formulation manufacturing facility at Duvvada, Visakhapatnam, Andhra Pradesh. The contents of the warning letter emanated from Form 483 observations that followed inspections of these sites by the U.S. FDA in November 2014, January 2015 and February-March 2015. Tabulated below are the further updates with respect to the aforementioned sites: Month and year Update The U.S. FDA completed the re-inspection of the aforementioned manufacturing facilities. During the re-inspections, the U.S. FDA February, March issued three observations with respect to the API manufacturing facility at Miryalaguda, two observations with respect to the API and April 2017 manufacturing facility at Srikakulam and thirteen observations with respect to the Company’s oncology formulation manufacturing facility at Duvvada. The U.S. FDA issued an Establishment Inspection Report (“EIR”) which indicated that the inspection of the Company’s API June 2017 manufacturing facility at Miryalaguda was successfully closed. The Company received EIRs from the U.S. FDA for the oncology manufacturing facility at Duvvada which indicated that the November 2017 inspection status of this facility remains unchanged. The Company received EIRs from the U.S. FDA for API manufacturing facility at Srikakulam which indicated that the inspection February 2018 status of this facility remains unchanged. June 2018 The Company requested the U.S. FDA to schedule a re-inspection of the oncology formulation manufacturing facility at Duvvada. The re-inspection was completed for the oncology formulation manufacturing facility at Duvvada and the U.S. FDA issued a October 2018 Form 483 with eight observations. The Company responded to the observations identifi ed by the U.S. FDA for the oncology formulation manufacturing facility at November 2018 Duvvada in October 2018. February 2019 The U.S. FDA issued an EIR indicating successful closure of the audit of the oncology formulation manufacturing facility at Duvvada. With respect to the API manufacturing facility at Srikakulam, subsequent to the receipt of EIR in February 2018, the Company was asked, in October 2018, to carry out certain detailed investigations and analyses and the Company submitted the results of the investigations and analyses. As part of the review of the response by the U.S. FDA, certain additional follow on queries have been received by the Company. The Company responded to all queries in January 2019 to the U.S. FDA. In February 2019, the Company received certain follow on questions from the U.S. FDA and the Company responded in March 2019. Based on the discussion with U.S. FDA, a meeting would be conducted prior to re-inspection of the site. Inspection of other facilities: Tabulated below are the details of the U.S. FDA inspections carried out during the fi nancial year ended 31 March 2019: Located in India Month and year Unit Details of observations No observations were noted. An EIR indicating the closure of audit for this facility was issued June 2018 API Srikakulam Plant (SEZ) by the U.S FDA in August 2018. No observations were noted. An EIR indicating the closure of audit for this facility was issued November 2018 Srikakulam Plant (SEZ) Unit II by the U.S. FDA in February 2019. January-April Four observations were noted. The Company responded to the observations and an EIR Srikakulam Plant (SEZ) Unit I 2019 indicating the closure of audit for this facility was issued by the U.S. FDA in April 2019. API manufacturing Plant at One observation was noted. The Company responded to the observation identifi ed by the January 2019 Miryalaguda, Nalgonda U.S. FDA, and awaiting to receive the EIR from agency. Eleven observations were noted. The Company responded to the observations in January January-April Formulations manufacturing 2019. 2019 facility at Bachupally, Hyderabad In April 2019, based on the Company’s responses and follow up actions, the U.S. FDA has determined the inspection classifi cation of this facility as Voluntary Action Initiated (“VAT”) . Aurigene Discovery Technologies March 2019 No observations were noted. The Company is awaiting an EIR from the U.S. FDA. Limited, Hyderabad

2.37 Inspection by the regulatory authority of Bavaria, Germany

In August 2017, the Company’s German subsidiary betapharm Arzneimittel GmbH received a letter from a regulatory authority of Bavaria, Germany (the Regierung von Oberbayern, which is the Central Authority for Supervision of Medicinal Products in Bavaria of the Upper Bavarian government) (the “Regulator”), that the GMP compliance certifi cate for the Company’s formulations manufacturing facility at Bachupally, Hyderabad was not renewed as the result of GMP compliance deviations identifi ed in an inspection. Consequently, this manufacturing facility was not permitted to export products to the European Union (the “EU”) until satisfactory resolution of the issues identifi ed in the inspection and renewal of the facility’s GMP compliance certifi cate. The manufacturing facility was re-inspected in January 2018 and the status of non-compliance was withdrawn. The facility is now permitted to dispatch approved products to the EU.

Building a winning future 259 Dr. Reddy’s Laboratories Limited

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(All amounts in Indian Rupees millions, except share data and where otherwise stated)

2.37 Inspection by the regulatory authority of Bavaria, Germany (continued) Furthermore, in September 2017, the Regulator concluded an inspection of the Company’s formulations manufacturing facility at Duvvada, Visakhapatnam, with zero critical and six major observations. Products manufactured at the facility are not currently exported to the EU. The Company submitted a Corrective and Preventive Action Plan (“CAPA”) to the Regulator. The Regulator accepted it and permitted the Company to start production from this facility for the EU market. In November 2018, the Regulator concluded the follow-on inspection of the manufacturing facility at Duvvada, which is now considered compliant and its EU-GMP certifi cation continues to remain active with one specifi c exclusion of a new product. The Company submitted a Corrective and Preventive Action Plan (“CAPA”) to the Regulator to address the remaining issues aff ecting this excluded product. 2.38 Agreements with Encore Dermatology, Inc. During the year ended 31 March 2019 The Company entered into agreement with Encore Dermatology, Inc. (“Encore”) for sale and assignment of US rights relating to three of its dermatology brands viz., Sernivo® (betamethasone dipropionate) Spray, 0.05%, Promiseb® Topical Cream and Trainex® 0.05% (Triamcinolone Acetonide Ointment, USP). All the performance obligations are satisfi ed by 31 March 2019, and accordingly the Company recognised ` 1,807 as revenue and ` 159 representing the profi t on sale of intangible assets as other income after adjusting the associated costs. The aforesaid transaction pertains to Company’s Proprietary Products Segment. During the year ended 31 March 2018 During the year ended 31 March 2018, the Company entered into an agreement with Encore for out-licensing one of its products, DFD-06. The consideration for this arrangement consists of up to ` 1,301 (US$ 20 million) in upfront payments and amounts contingent upon satisfaction of certain approval milestones, plus up to US$ 12.5 million contingent upon satisfaction of certain patent and commercial milestones. In addition, the Company is entitled to royalties on net sales. As all of the performance obligations relating to the approval milestones were met, and consequently, revenue of ` 1,301 (US$ 20 million) was recognised. 2.39 Capital management For the purposes of the Company’s capital management, capital includes issued capital and all other equity reserves. The primary objective of the Company’s capital management is to maximise shareholder value. The Company manages it’s capital structure and makes adjustments in the light of changes in economic environment and the requirements of the fi nancial covenants. The Company monitors capital using gearing ratio, which is total debt divided by total capital plus debt. The capital gearing ratio as on 31 March 2019 and 31 March 2018 was 22 % and 29%, respectively. 2.40 Subsequent events Agreement with Teva Pharmaceutical Industries Limited In April 2019, the Company entered into an asset purchase agreement with Teva Pharmaceutical Industries Limited to acquire a portfolio of 42 approved, non-marketed Abbreviated New Drug Applications (ANDAs) in the United States. The total purchase consideration involved is US$ 4 million. The portfolio includes more than 30 generic injectable products and helps augment the Company’s injectables product portfolio in the United States market and globally. The aforesaid acquisition pertains to Company’s Global Generics Segment. Agreement with Celgene The Company has entered into a settlement agreement with Celgene, pursuant to which the Company received a one-time payment of US$ 50 million in settlement of any claim the Company or its affi liates may have had for damages under section 8 of the Canadian Patented Medicines (Notice of Compliance) Regulations in regard to the Company’s ANDS for a generic version of REVLIMID brand capsules, (Lenalidomide) pending before Health Canada.

260 Company Overview Statutory Reports Financial Statements Annual Report 2018-19 IFRS Consolidated

EXTRACT OF AUDITED IFRS CONSOLIDATED FINANCIAL STATEMENTS

Consolidated Statements of Financial Position 262

Consolidated Income Statements 263

Consolidated Statements of 263 Comprehensive Income

Building a winning future 261 Dr. Reddy’s Laboratories Limited

EXTRACT OF IFRS CONSOLIDATED FINANCIAL STATEMENTS We have adopted IFRS as issued by International Accounting Standards Board (IASB) for preparing our fi nancial statements for the purpose of fi lings with SEC. We have furnished all our interim fi nancial reports of fi scal 2019 with SEC which were prepared under IFRS. The Annual Report in Form 20-F will also be made available at the Company’s website. A hard copy of such Annual Report in Form 20-F will be made available to the shareholders, free of charge, upon request. For details visit www.drreddys.com. The extract of the consolidated fi nancial statements prepared under IFRS has been provided here under. CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (All amounts in Indian Rupees millions, except share data and per share data) As at As at Particulars 31 March 2019 31 March 2018 Assets Current assets Cash and cash equivalents 2,228 2,638 Other investments 22,529 18,330 Trade and other receivables 39,869 40,617 Inventories 33,579 29,089 Derivative fi nancial instruments 360 103 Tax assets 3,400 4,567 Other current assets 12,536 14,301 Total current assets 114,501 109,645 Non-current assets Property, plant and equipment 54,088 57,869 Goodwill 3,902 3,945 Other intangible assets 44,367 44,665 Trade and other receivables 113 169 Investment in equity accounted investees 2,529 2,104 Other investments 813 2,549 Deferred tax assets 4,168 3,628 Other non-current assets 946 1,030 Total non-current assets 110,926 115,959 Total assets 225,427 225,604

Liabilities and equity Current liabilities Trade and other payables 14,553 16,052 Short-term borrowings 12,125 25,466 Long-term borrowings, current portion 4,256 63 Provisions 4,166 3,732 Tax liabilities 181 1,530 Derivative ﬁ nancial instruments 68 85 Bank overdraft - 96 Other current liabilities 24,351 22,668 Total current liabilities 59,700 69,692 Non-current liabilities Long-term borrowings 22,000 25,089 Deferred tax liabilities 610 730 Provisions 52 53 Other non-current liabilities 2,868 3,580 Total non-current liabilities 25,530 29,452 Total liabilities 85,230 99,144 Equity Share capital 830 830 Treasury shares (535) - Share premium 8,211 7,790 Share-based payment reserve 990 1,021 Capital redemption reserve 173 173 Retained earnings 128,646 113,865 Other components of equity 1,882 2,781 Total equity 140,197 126,460 Total liabilities and equity 225,427 225,604

262 Company Overview Statutory Reports Financial Statements Annual Report 2018-19 IFRS Consolidated

CONSOLIDATED INCOME STATEMENTS

(All amounts in Indian Rupees millions, except share data and per share data) For the year ended For the year ended For the year ended Particulars 31 March 2019 31 March 2018 31 March 2017 Revenues 153,851 142,028 140,809 Cost of revenues 70,421 65,724 62,453 Gross profi t 83,430 76,304 78,356 Selling, general and administrative expenses 48,890 46,910 46,372 Research and development expenses 15,607 18,265 19,551 Other (income)/expense, net (1,955) (788) (1,065) Total operating expenses 62,542 64,387 64,858 Results from operating activities 20,888 11,917 13,498 Finance income 2,280 2,897 1,587 Finance expense (1,163) (817) (781) Finance income, net 1,117 2,080 806 Share of profi t of equity accounted investees, net of tax 438 344 349 Profi t before tax 22,443 14,341 14,653 Tax expense 3,648 4,535 2,614 Profi t for the year 18,795 9,806 12,039

Earnings per share: Basic earnings per share of ` 5/- each 113.28 59.13 72.24 Diluted earnings per share of ` 5/- each 113.09 59.00 72.09

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (All amounts in Indian Rupees millions, except share data and per share data) For the year ended For the year ended For the year ended Particulars 31 March 2019 31 March 2018 31 March 2017 Profi t for the year 18,795 9,806 12,039 Other comprehensive income/(loss) Items that will not be reclassifi ed to the consolidated income statement: Changes in the fair value of fi nancial instruments (403) -- Actuarial gains/(losses) on post-employment benefi t obligations 10 39 (39) Tax impact on above items (414) (12) 14 Total of items that will not be reclassifi ed to the consolidated income (807) 27 (25) statement Items that will be reclassifi ed subsequently to the consolidated income statement: Changes in fair value of available for sale fi nancial instruments - (5,160) 2,209 Foreign currency translation adjustments (53) (32) (339) Foreign currency translation reserve re-classifi ed to the income (113) -- statement on disposal of foreign operation Eff ective portion of changes in fair value of cash fl ow hedges, net 180 (82) 968 Tax impact on above items (55) 1,394 (411) Total of items that will be reclassifi ed subsequently to the consolidated (41) (3,880) 2,427 income statement Other comprehensive income/(loss) for the year, net of tax (848) (3,853) 2,402 Total comprehensive income for the year 17,947 5,953 14,441

Building a winning future 263 Dr. Reddy’s Laboratories Limited

GLOSSARY

INR Indian Rupees IFRS International Financial Reporting Standards ADR American Depository Receipt IMS IMS Health Inc. AGM Annual General Meeting IND AS Indian Accounting Standards ANDA Abbreviated New Drug Application IP Intellectual Property API Active Pharmaceutical Ingredient IPA Indian Pharmaceutical Alliance AS Accounting Standards IPDO Integrated Product Development Organisation BR Business Responsibility ISIN International Securities Identifi cation Number BSE Bombay Stock Exchange JPY Japanese Yen CDP Carbon Disclosure Project KARV Kallam Anji Reddy Vidyalaya CDSL Central Depository Services (India) Limited KAR-VJR Kallam Anji Reddy – Vocational Junior College CEO Chief Executive Offi cer KMP Key Managerial Personnel CFO Chief Financial Offi cer KPI Key Performance Indicators CHIP Community Health Intervention Programme KW Kilo Watt CII Confederation of Indian Industry LABS Livelihood Advancement Business School CIN Corporate Identity Number LED Light Emitting Diode CIS Commonwealth of Independent States M&A Mergers and Acquisitions COBE Code Of Business Conduct and Ethics MC Management Council COO Chief Operating Offi cer MD Managing Director CPS Custom Pharmaceutical Services MD&A Management Discussion & Analysis CPCB Central Pollution Control Board MEO Mandal Education Offi cer CSIM Centre for Social Initiative and Management MW Mega Watt CSR Corporate Social Responsibility NAG North America Generics CTO Chemical Technical Operations NCLT National Company Law Tribunal CUSIP Committee on Uniform Security Identifi cation Procedures NGO Non-Governmental Organisation DIN Director’s Identifi cation Number NICE Neonatal Intensive Care and Emergencies DISCOM Distribution Company NPPA National Pharmaceutical Pricing Authority DMF Drug Master File NSDL National Securities Depository Limited DP Depository Participant NSE The National Stock Exchange of India Limited DRF Dr. Reddy’s Foundation NVG National Voluntary Guidelines DRFHE Dr. Reddy’s Foundation for Health and Education NYSE New York Stock Exchange Inc. Earnings Before Interest, Taxes, Depreciation And EBITDA OP Out Patient Amortization OTC Over-the-counter EGM Extraordinary General Meeting PAT Profi t After Tax EIR Establishment Inspection Report PBT Profi t Before Tax EM Emerging Markets PP Proprietary Products EPS Earnings Per Share PSAI Pharmaceuticals Services and Active Ingredients ERM Enterprise Risk Management PwD People with Disablities ESOP Employees Stock Option Plan RD Regional Director FAQ Frequently Asked Questions R&D Research and Development FIRM Finance, Investment and Risk Management Council COUNCIL RoCE Return on Capital Employed FTL Full Truck Load SEBI Securities and Exchange Board of India FTO Formulation Technical Operations SEC Securities and Exchange Commission FY Financial Year SEZ Special Economic Zone GDR Global Depository Receipt SG&A Selling, General and Administrative GG Global Generics SIP School Improvement Program GHG Green House Gas SMP Senior Management Personnel GMP Good Manufacturing Practices SPCB State Pollution Control Board HR Human Resources SS Secretarial Standards HVAC Heat, Ventilation and Air Conditioning SOX Sarbanes Oxley Act, 2002 HOC Heat of Compression TRO Temporary Restraining Order ICAI Institute of Chartered Accountants of India UK United Kingdom IDMA Indian Drug Manufacturers Association US/USA United States of America ICOFR Internal Control Over Financial Reporting USD/$ United States Dollar IEPF Investor Education and Protection Fund USFDA United States Food and Drugs Administration

264 Notice

NOTICE OF ANNUAL GENERAL MEETING

Notice is hereby given that the 35th annual general meeting “RESOLVED THAT pursuant to the provisions of Section (AGM) of the members of Dr. Reddy’s Laboratories Limited (CIN: 149 and 152 read with Schedule IV and other applicable L85195TG1984PLC004507) will be held on Tuesday, 30 July 2019 provisions, if any, of the Companies Act, 2013 and Companies at 9.30 am at The Ballroom, Hotel Park Hyatt, Road No. 2, Banjara (Appointment and Qualifi cation of Directors) Rules, 2014 and Hills, Hyderabad – 500 034, to transact the following business: Regulation 17(1A) and any other applicable regulations of the Securities and Exchange Board of India (Listing Obligations ORDINARY BUSINESS: and Disclosure Requirements) Regulations, 2015 (including any 1. To receive, consider and adopt the fi nancial statements statutory modifi cation(s) or re-enactment thereof, for the time (standalone and consolidated) of the company for the year being in force), Ms. Kalpana Morparia (DIN: 00046081) who ended 31 March 2019, including the audited balance sheet as was appointed as an independent director of the company for a at 31 March 2019 and the statement of profi t and loss of the period of fi ve years up to the conclusion of 35th annual general company for the year ended on that date along with the reports meeting (AGM), by the shareholders at the 30th AGM, in terms of the board of directors and auditors thereon. of Section 149 of the Companies Act, 2013 be and is hereby reappointed as an independent director of the company for a 2. To declare dividend on the equity shares for the fi nancial year 2018-19. second term of fi ve consecutive years, to hold offi ce up to 30 July 2024, not liable to retire by rotation. 3. To reappoint Mr. G V Prasad (DIN: 00057433), who retires by rotation, and being eligible off ers himself for the reappointment. 6. APPOINTMENT OF MR. LEO PURI (DIN: 01764813) AS AN INDEPENDENT DIRECTOR IN TERMS OF SECTION 149 OF SPECIAL BUSINESS: THE COMPANIES ACT, 2013. 4. REAPPOINTMENT OF MR. SRIDAR IYENGAR (DIN: 00278512) AS AN INDEPENDENT DIRECTOR FOR A SECOND TERM OF To consider and, if thought fi t, to pass, with or without FOUR YEARS, IN TERMS OF SECTION 149 OF THE COMPANIES modifi cation(s), the following resolution as an ordinary resolution: ACT, 2013 AND REGULATION 17(1A) OF THE SECURITIES AND EXCHANGE BOARD OF INDIA (LISTING OBLIGATIONS “RESOLVED THAT pursuant to the provisions of Section 149 AND DISCLOSURE REQUIREMENTS) REGULATIONS, 2015. and 152 read with Schedule IV and other applicable provisions, if any, of the Companies Act, 2013 and Companies (Appointment To consider and, if thought fi t, to pass, with or without and Qualifi cation of Directors) Rules, 2014 (including any modifi cation(s), the following resolution as a special resolution: statutory modifi cation(s) or re-enactment thereof, for the time being in force), Mr. Leo Puri (DIN: 01764813) who was “RESOLVED THAT pursuant to the provisions of Section 149 and appointed as an additional director of the company, categorised 152 read with Schedule IV and other applicable provisions, if any, as independent, by the board of directors with eff ect from of the Companies Act, 2013 and Companies (Appointment and 25 October 2018, in terms of Section 161 of the Companies Act, Qualifi cation of Directors) Rules, 2014 and Regulation 17(1A) and 2013 and in respect of whom the company has received notice any other applicable regulations of the Securities and Exchange in writing under Section 160 of the Companies Act, 2013, from a Board of India (Listing Obligations and Disclosure Requirements) member proposing him as a director, be and is hereby appointed Regulations, 2015 (including any statutory modifi cation(s) or as an independent director of the company with eff ect from 25 re-enactment thereof, for the time being in force), Mr. Sridar Iyengar October 2018 to hold offi ce up to 24 October 2023, not liable (DIN: 00278512) who was appointed as an independent director to retire by rotation.” of the company for a period of fi ve years up to the conclusion of 35th annual general meeting (AGM), by the shareholders at the 7. APPOINTMENT OF MS. SHIKHA SHARMA (DIN: 00043265) 30th AGM, in terms of Section 149 of the Companies Act, 2013 AS AN INDEPENDENT DIRECTOR IN TERMS OF SECTION 149 be and is hereby reappointed as an independent director of the OF THE COMPANIES ACT, 2013. company for a second term of four consecutive years, to hold offi ce up to 30 July 2023, not liable to retire by rotation. To consider and, if thought fi t, to pass, with or without modifi cation(s), the following resolution as an ordinary resolution: 5. REAPPOINTMENT OF MS. KALPANA MORPARIA (DIN: 00046081) AS AN INDEPENDENT DIRECTOR FOR A SECOND TERM OF “RESOLVED THAT pursuant to the provisions of Section 149 FIVE YEARS, IN TERMS OF SECTION 149 OF THE COMPANIES and 152 read with Schedule IV and other applicable provisions, ACT, 2013 AND REGULATION 17(1A) OF THE SECURITIES AND if any, of the Companies Act, 2013 and Companies (Appointment EXCHANGE BOARD OF INDIA (LISTING OBLIGATIONS AND and Qualifi cation of Directors) Rules, 2014 (including any DISCLOSURE REQUIREMENTS) REGULATIONS, 2015. statutory modifi cation(s) or re-enactment thereof, for the time being in force), Ms. Shikha Sharma (DIN: 00043265) who was To consider and, if thought fi t, to pass, with or without appointed as an additional director of the company, categorised modifi cation(s), the following resolution as a special resolution: as independent, by the board of directors with eff ect from

Building a winning future 265 Dr. Reddy’s Laboratories Limited

NOTICE OF ANNUAL GENERAL MEETING (CONTINUED)

31 January 2019, in terms of Section 161 of the Companies Act, NOTES: 2013 and in respect of whom the company has received notice in writing under Section 160 of the companies Act, 2013, from a member proposing her as a director, be and is hereby appointed 1) The statement pursuant to Section 102(1) of the Companies as an independent director of the company with eff ect from Act, 2013 and the Rules made thereunder in respect of the 31 January 2019 to hold offi ce up to 30 January 2024, not liable special business set out in the notice, Secretarial Standard on to retire by rotation.” General Meetings (SS-2), wherever applicable, and SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, 8. APPOINTMENT OF MR. ALLAN OBERMAN (DIN: 08393837) (Listing Regulations) wherever applicable, are annexed hereto. AS AN INDEPENDENT DIRECTOR IN TERMS OF SECTION 149 OF THE COMPANIES ACT, 2013. 2) A member entitled to attend and vote at the AGM is entitled to appoint a proxy to attend and vote instead of To consider and, if thought fi t, to pass, with or without himself/herself and the proxy need not be a member of the modifi cation(s), the following resolution as an ordinary resolution: company. The instrument of proxy in order to be eff ective, must be deposited at the registered offi ce of the company, “RESOLVED THAT pursuant to the provisions of Section 149 duly completed and signed, not less than 48 hours before the and 152 read with Schedule IV and other applicable provisions, commencement of the meeting. if any, of the Companies Act, 2013 and Companies (Appointment and Qualifi cation of Directors) Rules, 2014 (including any A person can act as a proxy on behalf of not exceeding fi fty statutory modifi cation(s) or re-enactment thereof, for the time members and holding in the aggregate not more than ten being in force), Mr. Allan Oberman (DIN: 08393837) who was percent of the total share capital of the company carrying appointed as an additional director of the company, categorised voting rights. A member holding more than ten percent of the as independent, by the board of directors with eff ect from total share capital of the company carrying voting rights may 26 March 2019, in terms of Section 161 of the Companies Act, appoint a single person as proxy and such person shall not act 2013 and in respect of whom the company has received notice as a proxy for any other person or member. in writing under Section 160 of the Companies Act, 2013, from a member proposing him as a director, be and is hereby appointed 3) Corporate members intending to send their authorised as an independent director of the company with eff ect from representatives to attend the meeting are requested to send 26 March 2019 to hold offi ce up to 25 March 2024, not liable to to the company, a certifi ed copy of the board resolution retire by rotation.” authorizing their representative to attend and vote on their behalf at the meeting. 9. TO RATIFY THE REMUNERATION PAYABLE TO COST AUDITORS, M/S. SAGAR & ASSOCIATES, COST ACCOUNTANTS 4) During the period beginning 24 hours before the time fi xed FOR THE FINANCIAL YEAR ENDING 31 MARCH 2020. for the commencement of the meeting and ending with the conclusion of the meeting, a member would be entitled to To consider and, if thought fi t, to pass, with or without inspect the proxies lodged with the company, at any time during modifi cation(s), the following resolution as an ordinary resolution: the business hours of the company, provided that not less than three days of notice in writing is given to the company. “RESOLVED THAT pursuant to the provisions of Section 148 and other applicable provisions, if any, of the Companies Act, 2013 5) The requirement to place the matter relating to the appointment and the Companies (Audit and Auditors) Rules, 2014 (including of statutory auditors for ratifi cation by members at every AGM any statutory modifi cation(s) or re-enactment thereof, for the time is omitted vide notifi cation dated 7 May 2018 issued by the being in force), M/s. Sagar & Associates, cost accountants (Firm Ministry of Corporate Aff airs, New Delhi. Accordingly, resolution Registration No. 000118) appointed by the board of directors for ratifi cation of the appointment of statutory auditors who were of the company as cost auditors for the fi nancial year ending appointed for a period of fi ve years at the 32nd AGM held on 31 March 2020, be paid a remuneration of ` 700,000/- (Rupees 27 July 2016 is not proposed at this AGM. Seven Lakhs) per annum plus out of pocket expenses, at actuals, and applicable taxes. 6) The register of directors and key managerial personnel and their shareholding, maintained under Section 170 of the RESOLVED FURTHER THAT the board of directors of the Companies Act, 2013, will be available for inspection by the company be and are hereby authorized to do all such acts, members at the AGM. matters, deeds and things as may be necessary to give eff ect to the above resolution.” 7) The register of contracts or arrangements in which directors are interested, maintained under Section 189 of the Companies Act, 2013, will be available for inspection by the members at the AGM.

266 Notice

NOTICE OF ANNUAL GENERAL MEETING (CONTINUED)

8) The register of members and share transfer books of the 2002’, ‘Dr. Reddy’s Employees ADR Stock Option Scheme, company will remain closed from Wednesday, 17 July 2019 to 2007’ and ‘Dr. Reddy’s Employees Stock Option Scheme, 2018’ Friday, 19 July 2019 (both days inclusive). are being implemented in accordance with the SEBI regulations and the resolutions passed by the members will be available for 9) The board of directors of the company at their meeting held inspection by the members at the AGM. on 17 May 2019 have recommended a dividend of ` 20/- per equity share of ` 5/- each as fi nal dividend for the fi nancial year 16) Members are requested to intimate immediately, any change 2018-19. Dividend, if declared, at the 35th AGM, will be paid on in their address to their depository participants with whom they or after 5 August 2019, to those members whose names appear are maintaining their demat accounts. If the shares are held on the register of members of the company as of end of the day in physical form, change in address has to be intimated to the on 16 July 2019. company’s registrar and transfer agent (RTA), Bigshare Services Private Limited, 306, Right Wing, 3rd Floor, Amrutha Ville, 10) The annual report for the fi nancial year 2018-19 has been Opp. Yashoda Hospital, Rajbhavan Road, Hyderabad 500 082, sent through e-mail to those members who have opted to Telangana, India Tel: +91-40-2337 4967, Fax: +91-40-2337 receive electronic communication or who have registered their 0295, E-mail ID: [email protected]. e-mail addresses with the company/depository participants. The annual report is also available on the company’s website: 17) In terms of Schedule I of the Listing Regulations, listed companies www.drreddys.com. The physical copy of the annual report are required to use the Reserve Bank of India’s approved has been sent to those members who have either opted for electronic mode of payment such as electronic clearance the same or have not registered their e-mail addresses with service (ECS), LECS (Local ECS)/RECS (Regional ECS)/NECS the company/depository participants. The members will be (National ECS), direct credit, real time gross settlement, national entitled to a physical copy of the annual report for the fi nancial electronic fund transfer (NEFT), etc. for making payments like year 2018-19, free of cost, upon sending a request to the dividend etc. to the members. company secretary at 8-2-337, Road No. 3, Banjara Hills, Hyderabad – 500 034. Accordingly, members holding securities in demat mode are requested to update their bank details with their depository 11) In case any member is desirous to receive communication from participants. Members holding securities in physical form should the company in electronic form, they may register their e-mail send a request updating their bank details, to the company’s RTA. address on www.drreddys.com/investors/investor-services/ shareholder-information.aspx or with their depository participant 18) SEBI has mandated the submission of permanent account number or send their consent at [email protected] along with their (PAN) by every participant in securities market. Members holding folio no. and valid e-mail address for registration. shares in electronic form are, therefore, requested to submit their PAN to their depository participants with whom they are 12) Pursuant to Section 108 of the Companies Act, 2013, read with maintaining their demat accounts. Members holding shares in Rule 20 of the Companies (Management and Administration) physical form should submit their PAN to the company or its RTA. Rules, 2014 as substituted by the Companies (Management and Administration) Amendment Rules, 2015 and Regulation 19) Pursuant to Section 72 of the Companies Act, 2013, members 44 of the Listing Regulations, the company is pleased to are entitled to make a nomination in respect of shares held by off er voting by electronic means to the members to cast their them. Members desirous of making a nomination, pursuant to votes electronically on all resolutions set forth in this notice. the Rule 19(1) of the Companies (Share Capital and Debentures) The detailed instructions for e-voting are given as a separate Rules, 2014 are requested to send their requests in form no. attachment to this notice. SH-13, to the RTA of the company. Further, members desirous of cancelling/varying nomination pursuant to the Rule 19(9) of 13) Members, desiring any information relating to the fi nancials from the Companies (Share Capital and Debentures) Rules, 2014, are the management or the statutory auditors, are requested to write requested to send their requests in form no. SH-14, to the RTA to the company at an early date to keep the information ready. of the company. These forms will be made available on request.

14) Members are requested to kindly bring their copy of the annual 20) The members may note that, pursuant to SEBI Notifi cation dated report with them at the AGM, as no extra copy of the annual report 8 June 2018 and Press Release dated 3 December 2018, would be made available at the AGM venue. Members/proxies transfer of shares (except transmission and transposition of should also bring the attached attendance slip, duly fi lled and shares) will be in dematerialised form only. Although, the hand it over at the entrance to the venue. members can continue to hold shares in physical form, they are requested to consider dematerializing the shares held by them 15) The certifi cate from the auditors of the company certifying that in the company. the company’s ‘Dr. Reddy’s Employees Stock Option Scheme,

Building a winning future 267 Dr. Reddy’s Laboratories Limited

ANNEXURE TO NOTICE OF AGM (CONTINUED)

21) All documents referred to in the accompanying notice will be secure login credentials. Members are encouraged to use this available for inspection at the registered offi ce of the company facility of the live webcast. The webcast facility will be available during business hours on all working days up to the date of 35th from 9.30 am onwards on 30 July 2019. AGM of the company. By order of the board 22) Your company is pleased to provide the facility of live webcast of proceedings of AGM. Members who are entitled to participate in the AGM can view the live proceedings of AGM by logging on Place : Hyderabad Sandeep Poddar the NSDL e-voting system at www.evoting.nsdl.com using their Date : 17 May 2019 Company Secretary

ANNEXURE TO NOTICE OF AGM

Statement provided under Secretarial Standard on General restrained from acting as a director by any SEBI order or by any Meetings (SS-2). other such authority.

ITEM NO. 3 Mr. Prasad has attended all meetings of the board held during Mr. G V Prasad (aged 58 years, DIN: 00057433) is a member of the FY2019. He holds 1,117,940 equity shares in the company. company’s board since 1986 and serves as co-chairman, managing director and chief executive offi cer of the company. He leads the Except Mr. G V Prasad, Mr. K Satish Reddy and their relatives, core team that drives the growth and performance at Dr. Reddy’s that none of the other directors and key managerial personnel of the has contributed signifi cantly to its transformation from a mid-sized company and their relatives are concerned or interested, fi nancially domestic operation into a worldwide pharmaceutical conglomerate. or otherwise, in the resolution set out at item no. 3 of the notice. Mr. Prasad is widely credited as the architect of Dr. Reddy’s successful Global Generics (GG) and Active Pharmaceutical Ingredients The board recommends the resolution set forth in item no. 3 of the (API) strategies, as well as company’s foray into biosimilars and notice for approval of the members. diff erentiated formulations. He envisioned new business platforms and is dedicated to building the innovation side of the business. About Mr. Prasad: Mr. Prasad holds a Bachelor’s degree in Chemical Engineering Mr. Prasad was listed among the Top 50 CEOs that India ever had from Illinois Institute of Technology, Chicago in the USA and by Outlook magazine in 2017 and was recognized as one the an M.S. in Industrial Administration from Purdue University, top 5 Most Valuable CEOs of India by Business World in 2016. Indiana in the USA. He was also listed in the prestigious ‘Medicine Maker 2018 Power List’ of most inspirational professionals shaping the future of drug Mr. Prasad is also a director on the boards of: Green Park Hotels development, and has been named India Business Leader of the and Resorts Limited, Stamlo Industries Limited, Dr. Reddy’s Holdings year by CNBC Asia, in 2015. Limited, Ruthenika Technologies Limited, Molecular Connections Private Limited, Dr. Reddy’s Trust Services Private Limited, Prior to May 2014, Mr. Prasad held titles of chairman and chief Dr. Reddy’s Institute of Life Sciences, International Foundation executive offi cer. He was the managing director of Cheminor Drugs for Research and Education, Indian School of Business, Andhra Limited, prior to its merger with Dr. Reddy’s. He was reappointed Pradesh State Skill Development Corporation and company’s wholly as a whole-time director designated as co-chairman, managing owned subsidiaries, Aurigene Discovery Technologies Limited director and CEO of the company at the 32nd AGM of the members and Idea2Enterprises (India) Private Limited in India; Aurigene held on 27 July 2016, for a further period of fi ve years commencing Discovery Technologies Inc., Dr. Reddy’s Laboratories Inc., Promius 30 January 2016 to 29 January 2021, liable to retire by rotation. Pharma LLC in USA and Kunshan Rotam Reddy Pharmaceuticals He retires by rotation at the 35th AGM of the company and being Limited in China. eligible, off ers himself for the reappointment. He is a member of corporate social responsibility committee, The company has, inter alia, received an intimation in Form stakeholders’ relationship committee and banking and DIR-8 pursuant to Rule 14 of the Companies (Appointment and authorisations committee of Dr. Reddy’s Laboratories Limited Qualifi cation of Directors) Rules, 2014, from Mr. Prasad to the eff ect and member of nomination and remuneration committee and that he is not disqualifi ed in accordance with Section 164(2) of the corporate social responsibility committee of Aurigene Discovery Companies Act, 2013 and a declaration that he is not debarred or Technologies Limited.

268 Notice

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Statement pursuant to Section 102(1), other provisions of the Mr. Iyengar is the chairperson of the audit committee and a member of Companies Act, 2013, the Rules made thereunder, as applicable, the risk management committee. Further, the board of directors has under secretarial standard on general meetings (SS-2) for item determined that Mr. Iyengar is an audit committee fi nancial expert nos. 4 – 9 and under Listing Regulations, wherever applicable. as defi ned in Item 401(h) of Regulations S-K, and is independent pursuant to applicable NYSE rules. ITEM NO. 4 Mr. Sridar Iyengar (aged 71 years, DIN: 00278512) was appointed Considering the above, it is recommended to reappoint him as a director on the board of the company in August 2011. In terms as an independent director for the second term of 4 (four) of Section 149 and other applicable provisions of the Companies consecutive years from 31 July 2019 up to 30 July 2023, not Act, 2013, Mr. Iyengar was appointed as an independent director liable to retire by rotation, by passing the special resolution as for a period of fi ve years, at the 30th AGM of the company held set out in this notice. on 31 July 2014. Accordingly, his fi rst term as a non-executive independent director is ending at the 35th AGM. The company has received, inter alia, (i) intimation in form DIR-8 pursuant to Rule 14 of the Companies (Appointment and Section 149(10) of the Companies Act, 2013, provides that Qualifi cation of Directors) Rules, 2014, from Mr. Iyengar to the an independent director shall hold offi ce for a term up to fi ve eff ect that he is not disqualifi ed in accordance with Section consecutive years on the board of a company but shall be eligible 164(2) of the Companies Act, 2013; (ii) declaration that he meets for reappointment, for another term of up to fi ve years, on passing of the criteria of independence as provided in the Companies a special resolution by the shareholders. Act, 2013 and Listing Regulations; (iii) declaration that he is not debarred or restrained from acting as a director by any SEBI order In terms of Section 152 and Schedule IV of the Companies Act, 2013, or by any other such authority; and (iv) a notice in writing from a outcome of his performance evaluation and recommendations of member under Section 160 of the Act proposing the candidature the nomination, governance and compensation committee (NGCC), of Mr. Iyengar as a director of the company. the board is of the opinion that Mr. Iyengar fulfi ls the conditions for his reappointment as an independent director as specifi ed Mr. Iyengar has physically attended four board meetings out of fi ve in the Companies Act, 2013 and the Listing Regulations and is held during FY2019. He had requested and was granted leave of independent of the management. The NGCC and the board strongly absence for one meeting. However, he participated in that meeting recommend the resolution for consideration of the members. through tele-conference. He does not hold any equity shares in the company. For FY2019 he is entitled to a commission based Accordingly, the company is seeking the approval of its members remuneration as an independent director of `104.4 lakhs. by way of a special resolution, in view of the aforementioned provisions, for reappointment of Mr. Iyengar for the second term of 4 A copy of the draft letter of reappointment, setting out the terms (four) consecutive years from 31 July 2019 to 30 July 2023. and conditions of reappointment of Mr. Iyengar, is available for inspection, without any fee, by the members at the company’s Further, according to Regulation 17(1A) of the Listing Regulations, registered offi ce during business hours on all working days up to a listed entity shall appoint a person or continue the directorship of the date of the AGM. any person as a non-executive director who has attained seventy fi ve years of age only after the concerned listed company has Except Mr. Iyengar and his relatives, none of the other directors or obtained approval of its members by way of a special resolution. key managerial personnel of the company and their relatives are Since Mr. Iyengar will attain seventy fi ve years during his tenure as concerned or interested, fi nancially or otherwise, in the resolution an independent director in the second term, the company is seeking set out in item no. 4 of the notice. the approval of its members by way of a special resolution. The board strongly recommends the special resolution set forth in In July 2019, terms of four independent directors of the company item no. 4 of the notice for approval of the members. will come to an end viz; Mr. Anupam Puri, Dr. Omkar Goswami, Mr. Sridar Iyengar and Ms. Kalpana Morparia. Mr. Anupam Puri About Mr. Iyengar: completes his second term and Dr. Omkar Goswami does not seek Mr. Sridar Iyengar holds a Bachelor of Commerce (Hons.) degree reappointment. The company has appointed three new board from the Calcutta University, India and is a Fellow of the Institute of members this year. Given this signifi cant transition of the board, Chartered Accountants in England and Wales. the board of directors believes that the continued presence of Mr. Iyengar is critical in maintaining its fi duciary continuity during Mr. Iyengar is an independent mentor investor in early stage startups this period of transition. Hence, the board believes that it is in and companies. For more than 35 years, he has worked in the UK, the best interest of the company, to reappoint Mr. Iyengar as an USA and India with a large number of companies, advising them on independent director for the second term of 4 (four) consecutive strategy and other issues. Earlier Mr. Iyengar was a senior partner years. The continued association of Mr. Iyengar would be of immense with KPMG in the USA and UK and also served as the Chairman and benefi t to the company and will help the board to maintain continuity, CEO of KPMG’s operations in India. given signifi cant changes in the composition of the board.

Building a winning future 269 Dr. Reddy’s Laboratories Limited

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Mr. Iyengar also holds directorship in Mahindra Holidays & Resorts for reappointment of Ms. Morparia for the second term of 5 (fi ve) India Limited, ICICI Venture Funds Management Company Limited, consecutive years from 31 July 2019 to 30 July 2024. Cleartrip Private Limited in India, AverQ Inc. in the USA, Cleartrip Inc. in the Cayman Islands, Holiday Club Resorts OY in Finland and our Further, according to Regulation 17(1A) of the Listing Regulations, wholly owned subsidiary, Dr. Reddy’s Laboratories SA in Switzerland. a listed entity shall appoint a person or continue the directorship of Apart from the committee chairmanship or membership in any person as a non-executive director who has attained seventy Dr. Reddy’s, Mr. Iyengar is also the chairman/member of committees fi ve years of age only after the concerned listed company has of other companies as given in the table below: obtained approval of its members by way of a special resolution. Since Ms. Morparia will attain seventy fi ve years during her tenure as COMMITTEE CHAIRMANSHIPS/MEMBERSHIPS OF an independent director in the second term, the company is seeking MR. SRIDAR IYENGAR the approval of its members by way of a special resolution. COMPANY COMMITTEE CHAIRMAN/MEMBER NAME In July 2019, terms of four independent directors of the company Mahindra Audit committee Chairman will come to an end viz; Mr. Anupam Puri, Dr. Omkar Goswami, Holidays and Mr. Sridar Iyengar and Ms. Kalpana Morparia. Mr. Anupam Puri Resorts India Remuneration committee Member Limited, India completes his second term and Dr. Omkar Goswami does not seek Nomination and Member reappointment. The company has appointed three new board remuneration committee members this year. Given this signifi cant transition of the board, Corporate social ICICI Venture Chairman Funds responsibility committee the board of directors believes that the continued presence of Chairman (with eff ect Ms. Morparia is critical in maintaining its fi duciary continuity during Management Audit committee Company from 8 May 2019) this period of transition. Hence, the board believes that it is in the Employee co-invest Limited, India Member best interest of the company, to reappoint Ms. Morparia as an committee Funds committee Member independent director for the second term of 5 (fi ve) consecutive Cleartrip Audit committee Chairman years. The continued association of Ms. Morparia would be of Private immense benefi t to the company and will help the board to maintain Compensation committee Member Limited, India continuity, given signifi cant changes in the composition of the board. Audit committee Chairman Cleartrip Inc., Cayman Compensation committee Member Ms. Morparia is the chairperson of the stakeholders’ relationship Nominating & governance Islands Chairman committee and a member of the science, technology and operations committee committee. The continued association of Ms. Morparia would be of immense benefi t to the company. ITEM NO. 5 Ms. Kalpana Morparia (aged 70 years, DIN: 00046081) Considering the above, it is recommended to reappoint her as an was appointed as a director on the board of the company in independent director for the second term of 5 (fi ve) consecutive June 2007. In terms of Section 149 and other applicable provisions years from 31 July 2019 up to 30 July 2024, not liable to retire by of the Companies Act, 2013 she was appointed as an independent rotation by passing the special resolution as set out in this notice. director for a period of fi ve years, at the 30th AGM of the company held on 31 July 2014. Accordingly, her fi rst term as a non-executive The company has received, inter alia, (i) intimation in form DIR-8 independent director is ending at the 35th AGM. pursuant to Rule 14 of the Companies (Appointment and Qualifi cation of Directors) Rules, 2014, from Ms. Morparia to the Section 149(10) of the Act, provides that an independent director eff ect that she is not disqualifi ed in accordance with Section shall hold offi ce for a term up to fi ve consecutive years on the 164(2) of the Companies Act, 2013; (ii) declaration that she meets board of a company but shall be eligible for reappointment, for the criteria of independence as provided in the Companies another term of up to fi ve consecutive years, on passing of a special Act, 2013 and Listing Regulations; (iii) declaration that she is not resolution by the members. debarred or restrained from acting as a director by any SEBI order or by any other such authority; and (iv) a notice in writing from a In terms of Section 152 and Schedule IV of the Companies Act, member under Section 160 of the Act proposing the candidature 2013, outcome of performance evaluation and recommendations of of Ms. Morparia as a director of the company. the nomination, governance and compensation committee (NGCC), the board is of the opinion that Ms. Morparia fulfi ls the conditions Ms. Morparia has attended all fi ve board meetings held during for her reappointment as an independent director as specifi ed FY2019. She holds 10,800 equity shares in the company. in the Companies Act, 2013 and the Listing Regulations and is For FY2019 she is entitled to a commission based remuneration independent of the management. The NGCC and the board strongly as an independent director of ` 96.8 lakhs. recommend the resolution for consideration of the members. A copy of the draft letter of reappointment, setting out the terms Accordingly, the company is seeking the approval of its members by and conditions of reappointment of Ms. Morparia, is available for way of a special resolution, in view of the aforementioned provisions, inspection, without any fee, by the members at the company’s

270 Notice

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registered offi ce during business hours on all working days up to In terms of Section 152 and Schedule IV of the Companies Act, the date of the AGM. 2013, the board is of the opinion that Mr. Puri, fulfi ls the conditions for his appointment as an independent director as specifi ed in Except Ms. Morparia and her relatives, none of the other directors the Companies Act, 2013 and the Listing Regulations and is or key managerial personnel of the company and their relatives are independent of the management. concerned or interested, fi nancially or otherwise, in the resolution set out in item no. 5 of the notice. A copy of the draft letter of appointment, setting out the terms and conditions of appointment of Mr. Puri, is available for inspection, The board strongly recommends the resolution set forth in item no. without any fee, by the members at the company’s registered 5 of the notice for approval of the members. offi ce during business hours on all working days up to the date of the AGM. About Ms. Morparia: Ms. Kalpana Morparia is a graduate in science and law from Mr. Puri has attended all three board meetings held since Mumbai University, India. his appointment. He does not hold any equity shares in the company. Ms. Morparia is Chairperson of J.P. Morgan, South and Southeast Asia and a member of J.P. Morgan’s Asia Pacifi c Management Except Mr. Puri and his relatives, none of the other directors or Committee. Prior to joining J.P. Morgan, India, Ms. Morparia served key managerial personnel of the company and their relatives are as Vice Chair on the boards of ICICI Group Companies and was the concerned or interested, fi nancially or otherwise, in the resolution Joint Managing Director of ICICI Bank from 2001 to 2007. She has set out in item no. 6 of the notice. been recognized by several national and international media for her role as one of the leading women professionals. The NGCC and the board recommends the resolution set forth in item no. 6 of the notice for approval of the members. She also holds directorship in Hindustan Unilever Limited and J.P. Morgan Services India Private Limited in India, Philip Morris About Mr. Puri: International Inc. in the USA. Ms. Morparia is also a member of the Mr. Leo Puri has a Master’s degree in P.P.E. from Oxford Governing Board of Bharti Foundation. University, UK and a Master’s degree in Law from Cambridge University, UK. Apart from committee chairpersonship or membership in Dr. Reddy’s, she is also a member of corporate social responsibility Mr. Leo Puri was the Managing Director of UTI Asset Management committee of Hindustan Unilever Limited. She is chairperson of Co. Limited from August 2013 to August 2018. In his career of nominating and corporate governance committee, member more than 30 years, Mr. Puri has previously worked as director of fi nance committee and product innovation and regulatory with McKinsey & Company and as managing director with aff airs committee of Philip Morris International Inc., USA. Warburg Pincus. Mr. Puri has worked in the UK, USA and Asia. Since 1994, he has primarily worked in India. At McKinsey, he ITEM NO.6 has advised leading fi nancial institutions, conglomerates and Mr. Leo Puri (aged 58 years, DIN: 01764813) was appointed as investment institutions in strategy and operational issues. He has an additional director categorized as independent by the board contributed to the development of knowledge and public policy for a term of fi ve years with eff ect from 25 October 2018 up to through advice to regulators and government offi cials. At Warburg 24 October 2023, subject to the approval of shareholders of the Pincus, he was responsible for leading and managing investments company at the AGM. across industries in India. He also contributed to fi nancial services investments in the international portfolio as a member of the The company has received, inter alia, (i) consent in writing to act global partnership. as director in form DIR-2 pursuant to rule 8 of the Companies (Appointment and Qualifi cation of Directors) Rules, 2014; (ii) He also holds directorships in Hindustan Unilever Limited, Northern intimation in form DIR-8 pursuant to Rule 14 of the Companies Arc Capital Limited and Indiaideas.com Limited (Billdesk). (Appointment and Qualifi cation of Directors) Rules, 2014, from Mr. Puri to the eff ect that he is not disqualifi ed in accordance with Mr. Puri is a member of the nomination, governance and Section 164(2) of the Companies Act, 2013; (iii) declaration that he compensation committee and science, technology and meets the criteria of independence as provided in the Companies operations committee of Dr. Reddy’s Laboratories Limited. Act, 2013 and Listing Regulations; (iv) declaration that he is not He is also a member of the audit committee and nomination debarred or restrained from acting as a director by any SEBI order & remuneration committee of Hindustan Unilever Limited or by any other such authority; and (v) a notice in writing from a and Northern Arc Capital Limited. He is also the chairman of member under Section 160 of the Act proposing the candidature audit committee and nomination & remuneration committee of of Mr. Puri as a director of the company. Indiaideas.com Limited (Billdesk).

Building a winning future 271 Dr. Reddy’s Laboratories Limited

ANNEXURE TO NOTICE OF AGM (CONTINUED)

ITEM NO. 7 corporate lender to a bank with a strong retail deposit franchise and Ms. Shikha Sharma (aged 60 years, DIN: 00043265) was a balanced lending book. appointed as an additional director categorized as independent by the board for a term of fi ve years with eff ect from Ms. Sharma has more than three decades of experience in the 31 January 2019 up to 30 January 2024, subject to the approval fi nancial sector, having begun her career with ICICI Bank Limited in of shareholders of the company at the AGM. 1980. During her tenure with the ICICI Group, she was instrumental in setting up ICICI Securities. As managing director & CEO of ICICI The company has received, inter alia, (i) consent in writing to act Prudential Life Insurance Company Limited, she led the company as director in form DIR-2 pursuant to Rule 8 of the Companies to become the No. 1 private sector life insurance company in India. (Appointment and Qualifi cation of Directors) Rules, 2014; (ii) She was a member of RBI’s Technical Advisory Committee, Panel on intimation in form DIR-8 pursuant to Rule 14 of the Companies Financial Inclusion, Committee on Comprehensive Financial Services (Appointment and Qualifi cation of Directors) Rules, 2014, from for Small Businesses and Low-Income Household etc. She has Ms. Sharma to the eff ect that she is not disqualifi ed in accordance chaired CII’s National Committee on Banking from 2015 to 2017. with Section 164(2) of the Companies Act, 2013; (iii) declaration that she meets the criteria of independence as provided in the Ms. Sharma is also a director on the board of Ambuja Cements Companies Act, 2013 and Listing Regulations; (iv) declaration Limited (with eff ect from 1 April 2019) and Tata Global Beverages that she is not debarred or restrained from acting as a director by Limited (with eff ect from 7 May 2019). any SEBI order or by any other such authority; and (v) a notice in writing from a member under Section 160 of the Act proposing She is a member of the audit committee and risk management the candidature of Ms. Sharma as a director of the company. committee of Dr. Reddy’s Laboratories Limited. She is also a member of the audit committee of Ambuja Cements Limited. In terms of Section 152 and Schedule IV of the Companies Act, 2013, the board is of the opinion that Ms. Sharma, fulfi ls the conditions ITEM NO. 8 for her appointment as an independent director as specifi ed Mr. Allan Oberman (aged 61 years, DIN: 08393837) was appointed in the Companies Act, 2013 and the Listing Regulations and is as an additional director categorized as independent by the independent of the management. board for a term of fi ve years with eff ect from 26 March 2019 up to 25 March 2024, subject to the approval of shareholders of the A copy of the draft letter of appointment, setting out the terms company at the AGM. and conditions of appointment of Ms. Sharma, is available for inspection, without any fee, by the members at the company’s The company has received, inter alia, (i) consent in writing registered offi ce during business hours on all working days up to to act as director in form DIR-2 pursuant to Rule 8 of the the date of the AGM. Companies (Appointment and Qualifi cation of Directors) Rules, 2014; (ii) intimation in form DIR-8 pursuant to Rule 14 of the Ms. Sharma has attended both the board meetings held Companies (Appointment and Qualifi cation of Directors) Rules, since her appointment. She does not hold any equity shares 2014, from Mr. Oberman to the eff ect that he is not disqualifi ed in the company. in accordance with Section 164(2) of the Companies Act, 2013; (iii) declaration that he meets the criteria of independence as Except Ms. Sharma and her relatives, none of the other directors provided in the Companies Act, 2013 and Listing Regulations; or key managerial personnel of the company and their relatives (iv) declaration that he is not debarred or restrained from acting are concerned or interested, fi nancially or otherwise, in the as a director by any SEBI order or by any other such authority; resolution set out in item no. 7 of the notice. and (v) a notice in writing from a member under Section 160 of the Act proposing the candidature of Mr. Oberman as a director The NGCC and the board recommends the resolution set forth in of the company. item no. 7 of the notice for approval of the members. In terms of Section 152 and Schedule IV of the Companies Act, About Ms. Sharma: 2013, the board is of the opinion that Mr. Oberman, fulfi ls the Ms. Shikha Sharma holds an MBA from the Indian Institute of conditions for his appointment as an independent director as Management, Ahmedabad, India, B.A. (Hons.) in Economics and specifi ed in the Companies Act, 2013 and the Listing Regulations Post Graduate Diploma in Software Technology from National and is independent of the management. Centre for Software Technology (NCST), Mumbai, India. A copy of the draft letter of appointment, setting out the terms Ms. Shikha Sharma was the managing director & CEO of Axis and conditions of appointment of Mr. Oberman, is available for Bank, India’s third largest private sector bank from June 2009 inspection, without any fee, by the members at the company’s upto December 2018. As a leader adept at managing change, she registered offi ce during business hours on all working days up to led the Bank on a transformation journey from being primarily a the date of the AGM.

272 Notice

ANNEXURE TO NOTICE OF AGM (CONTINUED)

Mr. Oberman had requested and was granted leave of absence for He is also on the board of Planet Shrimp Inc., Canada and Jay one meeting held since his appointment. However, he participated Pharma Inc. (with eff ect from 4 April 2019), Canada. in that meeting through tele-conference. He does not hold any equity shares in the company. He is a member of the science, technology and operations committee and risk management committee of Dr. Reddy’s Laboratories Limited. Except Mr. Oberman and his relatives, none of the other directors or key managerial personnel of the company and their relatives are ITEM NO. 9 concerned or interested, fi nancially or otherwise, in the resolution The board, on the recommendation of the audit committee, has set out in item no. 8 of the notice. approved the reappointment of M/s. Sagar & Associates, cost accountants (Firm Registration No. 000118), as cost auditors at a The NGCC and the board recommends the resolution set forth in remuneration of ` 700,000/- (Rupees Seven Lakhs) per annum plus item no. 8 of the notice for approval of the members. out of pocket expenses, at actuals and applicable taxes, to conduct the audit of the cost records of the company for the fi nancial year About Mr. Oberman: ending 31 March 2020. Mr. Allan Oberman holds an MBA from the Schulich School of Business, York University, Toronto, Canada and a BA from Western In accordance with the provisions of the Section 148 of the University, London, UK. Companies Act, 2013, read with the Companies (Audit and Auditors) Rules, 2014, the remuneration payable to the cost auditors has to He was the Chief Executive Offi cer of Concordia International Corp. be ratifi ed by the members of the company. from November 2016 until May 2018. In his career of more than 35 years, he also served as CEO of Sagent Pharmaceuticals Inc., and Accordingly, consent of the members is sought for passing an President and CEO of Teva Americas Generics, a subsidiary of Teva ordinary resolution as set out at item no. 9 of the notice for ratifi cation Pharmaceutical Industries Ltd. Prior to that, Mr. Oberman served of the remuneration payable to the cost auditors for the fi nancial as President of Teva EMIA, where from 2010 to 2012 he was year ending 31 March 2020. responsible for Eastern Europe, Middle East, Israel and Africa. From 2008 to 2010, he served as the Chief Operating Offi cer of the None of the directors or key managerial personnel of the company Teva International Group, and from 2000 to 2008, he served as the and their relatives are, concerned or interested, fi nancially or President and CEO of Teva Canada (formerly Novopharm Limited). otherwise, in the resolution set out in item no. 9 of the notice.

From 1996 to 2000, Mr. Oberman was the President of Best Foods The board recommends the resolution set forth in item no. 9 of the Canada Inc. Mr. Oberman was also Vice Chairman of the Association notice for approval of the members. for Accessible Medicines, Chairman of the Canadian Generic Pharmaceutical Association, and served on the associate board of By order of the board the Canadian Association of Chain Drug Stores, and was a member of the board of directors of the Baycrest Centre Foundation, the Electronic Commerce Council, and the Food and Consumer Place : Hyderabad Sandeep Poddar Products Association of Canada. Date : 17 May 2019 Company Secretary

Building a winning future 273 Dr. Reddy’s Laboratories Limited

INSTRUCTIONS FOR E-VOTING

Dear Members, Procedure to vote electronically using NSDL e-voting system Pursuant to the provisions of Section 108 of the Companies Act, The way to vote electronically on NSDL e-voting system consists of 2013, Rule 20 of the Companies (Management and Administration) ‘Two Steps’ which are mentioned below: Rules, 2014 as substituted by the Companies (Management and Administration) Amendment Rules, 2015 and Regulation 44 of the Step 1: Log-in to NSDL e-voting system at www.evoting.nsdl.com Listing Regulations, the company is pleased to provide remote e-voting Step 2: Cast your vote electronically on NSDL e-voting system. facility to members to cast their vote on all resolutions set forth in the notice convening the 35th annual general meeting (AGM) to be held Step 1: How to Log-in to NSDL e-voting website? on Tuesday, 30 July 2019 at 9.30 am. The company has engaged the services of National Securities Depository Limited (NSDL) to provide the 1. Visit the e-voting website of NSDL. Open web browser by typing remote e-voting facility. The facility of casting the votes by the members the following URL: www.evoting.nsdl.com either on a personal using an electronic voting system from a place other than the venue of computer or on a mobile. the AGM is termed as ‘‘remote e-voting’’. The remote e-voting facility is available at the link 2. Once the home page of e-voting system is launched, click on the www.evoting.nsdl.com. The e-voting event number (EVEN) and icon ‘Login’ which is available under ‘Shareholders’ section. period of remote e-voting are set out below: 3. A new screen will open. You will have to enter your user ID, EVEN Commencement of remote End of remote e-voting e-voting password and a veriﬁ cation code as shown on the screen. Friday, 26 July 2019 Monday, 29 July 2019 110838 Alternatively, if you are registered for NSDL eservices i.e. IDEAS, you at 9.00 am IST at 5.00 pm IST can log-in at https://eservices.nsdl.com with your existing IDEAS Please read the instructions printed below before exercising your vote. log-in. Once you log-in to NSDL eservices after using your log-in The details and instructions form an integral part of the notice of the credentials, click on e-voting and you can proceed to Step 2 i.e. AGM to be held on 30 July 2019. Cast your vote electronically.

4. Your User ID details are given below: Manner of holding shares i.e. Demat (NSDL or CDSL) or Physical Your User ID is 8 character DP ID followed by 8 digit Client ID. a) For members who hold shares in demat account with NSDL. For example: if your DP ID is IN300*** and Client ID is 12****** then your User ID is IN300***12****** 16 digit Beneﬁ ciary ID. b) For members who hold shares in demat account with CDSL. For example: if your Beneﬁ ciary ID is 12************** then your User ID is 12************** EVEN Number followed by Folio Number registered with the Company. c) For members holding shares in Physical Form. For example: if Folio Number is A01*** and EVEN is 123456 then user ID is 123456A01***

5. Instructions for retrieving password: fi le. The password to open the .pdf fi le is your 8 digit client ID for NSDL account, last 8 digits of Client ID for CDSL a. If you are already registered for e-voting, then you can use account or Folio Number for shares held in physical form. your existing password to log-in and cast your vote. The .pdf fi le contains your ‘User ID’ and ‘initial password’. b. If you are using NSDL e-voting system for the fi rst time, you will need your ‘‘initial password’’ which was communicated ii. If your e-mail ID is not registered, your ‘initial password’ to you. Details of ‘‘initial password’’ are given in point c (i) is communicated to you at your postal address. and (ii) below. Once you have your ‘‘initial password’’, you need to enter the ‘‘initial password’’ on the log-in page and 6. If you are unable to retrieve or have not received the ‘initial the system will force you to change your password. password’ or have forgotten your password: c. Initial password: a. If you are holding shares in your demat account with NSDL or CDSL, click on ‘Forgot User Details/Password’ i. If your e-mail ID is registered in your demat account or with option available on www.evoting.nsdl.com. the company, your ‘‘initial password’’ is communicated to you on your e-mail ID. Trace the e-mail sent to you b. If you are holding shares in physical mode, click on from NSDL from your mailbox. Open the e-mail and ‘Physical User Reset Password’ option available on open the attachment which is a .pdf fi le. Open the .pdf www.evoting.nsdl.com.

274 E-VOTING Notice

INSTRUCTIONS FOR E-VOTING (CONTINUED)

c. If you are still unable to get the password by aforesaid the member shall not be allowed to change it subsequently or two options, you can send a request at [email protected] cast the vote again. mentioning your demat account number/folio number, PAN, name and registered address. b) Any person, who acquires shares of the company and becomes a member of the company after dispatch of the d. You can also use the one time password (OTP) based login notice of AGM and holds shares as on the cut-off date i.e. for casting the votes on the NSDL e-voting system. Tuesday, 23 July 2019, may obtain user ID and password by sending a request at [email protected]. However, if you 7. After entering your password, click on ‘Agree to Terms and are already registered with NSDL for e-voting, then you can Conditions’ by selecting on the check box. use your existing user ID and password for casting your vote. If you forget your password, you can reset the password by 8. Now you will have to click on ‘Log-in’ button. using ‘‘forgot user details/password?’’ or ‘‘physical user reset password?’’ option available on www.evoting.nsdl.com or 9. After you click on the ‘Log-in’ button, home page of contact NSDL at the following tollfree no.: 1800-222-990. e-voting will open. c) The members who have cast their vote by remote e-voting Step 2: How to cast your vote electronically on NSDL prior to the AGM may also attend the AGM but shall not be e-voting system? entitled to cast their vote again.

1. After successful log-in at Step 1, you will be able to see the d) The facility for voting through electronic voting system/ home page of e-voting. Click on e-voting. Then, click on ballot paper shall be made available at the AGM venue and ‘‘Active Voting Cycles’’. the members attending the AGM who have not cast their vote by remote e-voting shall be able to exercise their right 2. After clicking on Active Voting Cycles, you will be able to at the AGM venue through electronic voting system/ballot see all the companies ‘‘EVEN’’ (E-voting Event Number) paper. Members who have not cast their vote electronically, by in which you are holding shares and whose voting cycle is remote e-voting, may only cast their vote at the AGM through in active status. electronic voting system/ballot paper.

3. Select ‘‘EVEN’ of ‘‘Dr. Reddy’s Laboratories Limited’. The Cast e) The voting rights of shareholders shall be in proportion to the Vote page will open. shares held by them, of the paid-up equity share capital of the company as on the cut-off date of Tuesday, 23 July 2019. 4. Now you are ready for e-voting as the voting page opens. f) Mr. G Raghu Babu, partner of M/s. R & A Associates, practising 5. Cast your vote by selecting your favoured option i.e. company secretary, Hyderabad (membership no. FCS 4448 assent/ dissent, verify/modify the number of shares for which & certiﬁ cate of practice no. 2820) has been appointed by the you wish to cast your vote and click on ‘Submit’ and also board as the scrutinizer to scrutinize the voting and remote ‘‘Conﬁ rm’ when prompted. e-voting process in a fair and transparent manner.

6. Upon confi rmation, the message ‘‘Vote cast successfully’’ g) At the AGM, at the end of discussion on the resolutions will be displayed. on which voting is to be held, the chairman shall, with the assistance of scrutinizer, order voting through electronic 7. You can also take the printout of the votes cast by you by means/ballot paper for all those members who are present at clicking on the print option on the confi rmation page. the AGM but have not cast their votes electronically using the remote e-voting facility. 8. Once you confi rm your vote on the resolution, you will not be allowed to modify your vote. h) Immediately after the conclusion of voting at the AGM, the scrutinizer shall fi rst count the votes cast at the AGM and General Instructions: thereafter unblock the votes cast through remote e-voting in a) The remote e-voting period commences on Friday, 26 July 2019 the presence of at least two witnesses not in the employment (9.00 am IST) and ends on Monday, 29 July 2019 (5.00 pm IST). of the company. The scrutinizer shall prepare a consolidated During this period, members of the company, holding shares scrutinizer’s report of the total votes cast in favour or against, either in physical form or in dematerialized form, as on the cut-off if any, not later than forty eight hours after the conclusion of date of Tuesday, 23 July 2019, may cast their votes electronically. the AGM. This report shall be made to the chairman or any The remote e-voting module shall be disabled by NSDL for voting other person authorized by the chairman, who shall declare thereafter. Once the vote on a resolution is cast by the member, the result of the voting forthwith.

Building a winning future 275 Dr. Reddy’s Laboratories Limited

INSTRUCTIONS FOR E-VOTING (CONTINUED)

i) The voting results declared along with the scrutinizer’s report conﬁ dential. Login to the e-voting website will be disabled shall be placed on the company’s website www.drreddys.com upon ﬁ ve unsuccessful attempts to key in the correct password. and the website of NSDL immediately after the declaration In such an event, you will need to go through the ‘Forgot User of the result by the chairman or a person authorized by the Details/Password?’ or ‘Physical User Reset Password?’ option chairman. The results shall also be immediately forwarded to available on www.evoting.nsdl.com to reset the password. the BSE Limited, National Stock Exchange of India Limited and the New York Stock Exchange Inc. l) In case of any queries, you may refer the frequently asked questions (FAQs) and e-voting user manual, available at j) Institutional shareholders (i.e. other than individuals, HUF, downloads section of www.evoting.nsdl.com or call on toll- NRI etc.) are required to send scanned copy (PDF/JPG free no.: 1800-222-990. You can also refer your queries to Format) of the relevant board resolution/authority letter NSDL through e-mail ID: [email protected]. etc. with attested specimen signature of the duly authorized signatory(ies) who are authorized to vote, to the scrutinizer by e-mail to [email protected] with a copy marked to [email protected]. By order of the board k) It is strongly recommended not to share your password with Place : Hyderabad Sandeep Poddar any other person and take utmost care to keep your password Date : 17 May 2019 Company Secretary

In terms of the requirements of the Secretarial Standard on General Meetings (SS-2) issued by the Institute of Company Secretaries of India, route map for the location of the venue of the 35th annual general meeting is given as under:

276 Notice  Dr. Reddy’s Laboratories Limited CIN: L85195TG1984PLC004507 Regd. Oﬃ ce: 8-2-337, Road No. 3, Banjara Hills, Hyderabad 500 034 E-mail ID: [email protected] Website: www.drreddys.com 35th Annual General Meeting – Tuesday, 30 July 2019

Attendance Slip

Folio No./DP ID & Client ID: No. of shares held:

Name and address of First/Sole member:

I certify that I am a member/proxy/authorised representative for the member of the company.

I, hereby record my presence at the 35th annual general meeting of the company held on Tuesday, 30 July 2019 at 9.30 am at The Ballroom, Hotel Park Hyatt, Road No.2, Banjara Hills, Hyderabad – 500 034.

______Name of the member/proxy Signature of the member/proxy (in BLOCK letters)

Notes: a) Only member/proxy can attend the meeting. No minors would be allowed at the meeting. b) Member/proxy who wish to attend the meeting must bring this attendance slip to the meeting and hand over at the entrance duly ﬁ lled in and signed. c) Member/proxy should bring his/her copy of the annual report for reference at the meeting. 

Building a winning future 277 Dr. Reddy’s Laboratories Limited

278 Notice

 Dr. Reddy’s Laboratories Limited CIN: L85195TG1984PLC004507 Regd. Oﬃ ce: 8-2-337, Road No. 3, Banjara Hills, Hyderabad 500 034 E-mail ID: [email protected] Website: www.drreddys.com 35th Annual General Meeting – Tuesday, 30 July 2019 Proxy Form (Pursuant to Section 105(6) of the Companies Act, 2013 and Rule 19(3) of the Companies (Management and Administration) Rules, 2014) Name of the member(s) ______Registered address: ______E-Mail ID: ______Folio No./Client ID: ______DP ID: ______I/We, being member(s) of Dr. Reddy’s Laboratories Limited, holding ______shares of the company, hereby appoint: 1. Name: ______Address: ______E-mail ID: ______Signature ______or failing him/her 2. Name: ______Address: ______E-mail ID: ______Signature ______or failing him/her 3. Name: ______Address: ______E-mail ID: ______Signature ______

as my/our proxy to attend and vote (on a poll/electronic voting) for me/us and on my/our behalf at the 35th annual general meeting of the company, to be held on Tuesday, 30 July 2019 at 9.30 am. at The Ballroom, Hotel Park Hyatt, Road No.2, Banjara Hills, Hyderabad – 500 034 and at any adjournment thereof in respect of such resolutions as are indicated below: Vote (see note d. below) Resolution Resolutions (Please mention no. of shares) Nos. For Against Abstain Ordinary Business 1. To receive, consider and adopt the fi nancial statements (standalone and consolidated)of the company for the year ended 31 March 2019, including the audited balance sheet as at 31 March 2019 and the statement of profi t and loss of the company for the year ended on that date along with the reports of the board of directors and auditors thereon. 2. To declare dividend on the equity shares for the fi nancial year 2018-19. 3. To reappoint Mr. G V Prasad (DIN: 00057433), who retires by rotation, and being eligible off ers himself for the reappointment. Special Business 4. Reappointment of Mr. Sridar Iyengar (DIN: 00278512) as an independent director for a second term of four years in terms of section 149 of the Companies Act, 2013 and Listing Regulations. 5. Reappointment of Ms. Kalpana Morparia (DIN: 00046081) as an independent director for a second term of fi ve years in terms of section 149 of the Companies Act, 2013 and Listing Regulations. 6. Appointment of Mr. Leo Puri (DIN: 01764813) as an independent director in terms of section 149 of the Companies Act, 2013 for a term of fi ve years. 7. Appointment of Ms. Shikha Sharma (DIN: 00043265) as an independent director in terms of section 149 of the Companies Act, 2013 for a term of fi ve years. 8. Appointment of Mr. Allan Oberman (DIN: 08393837) as an independent director in terms of section 149 of the Companies Act, 2013 for a term of fi ve years. 9. To ratify the remuneration payable to cost auditors, M/s. Sagar & Associates, cost accountants for the fi nancial year ending 31 March 2020. Signed this ______day of ______2019

Revenue Signature of the member(s) ______Signature of the proxyholder(s) ______stamp  Turn over for notes

Building a winning future 279 Dr. Reddy’s Laboratories Limited

Notes: a. Proxy need not be a member of the company. b. The proxy form in order to be eff ecti ve shall be duly fi lled in and signed by the member(s) across revenue stamp and should reach to the company’s registered offi ce: Dr. Reddy’s Laboratories Limited, 8-2-337, Road No. 3, Banjara Hills, Hyderabad 500 034 atleast 48 hours before the commencement of the AGM (i.e. on Sunday, 28 July 2019 before 9.30 am). c. Corporate members intending to send their authorized representati ve(s) to att end the meeti ng are requested to send a certi fi ed copy of the board resoluti on authorizing their representati ve(s) to att end and vote on their behalf at the meeti ng. d. It is opti onal to indicate your preference. If you leave the for, against or abstain column blank against any or all resoluti ons, your proxy will be enti tled to vote in the manner as he/she may think appropriate.

280 “The future belongs, not to those who merely seek opportunity, but to CONTENTS those who create it. Let CORPORATE OVERVIEW STATUTORY REPORTS FINANCIAL STATEMENTS us have the courage to Letter from the Chairman and 02 Business responsibility report 22 Standalone fi nancial statements 103 do things diff erently.” Co-Chairman Management discussion and 34 (Ind AS) Our Businesses 04 analysis Consolidated fi nancial statements 175 Key Performance Indicators 06 Five years at a glance and key 46 (Ind AS) Building a Winning Future 07 fi nancial ratios Extract of audited IFRS consolidated 261 fi nancial statements Board of directors 16 Corporate governance 48 Glossary 264 DR. K ANJI REDDY Management council 20 Additional shareholders’ 68 information Notice of the 35th annual 265 Board’s report 80 general meeting DR. REDDY’S LABORATORIES LIMITED Annual Report 2018-19 Good Health Can't Wait CIN:L85195TG1984PLC004507 Road No. Banjara 3, Hills,8-2-337, Hyderabad 500 India 034, www.drreddys.com DR. REDDY’S LABORATORIES LIMITED